Roche Ltd. Annual Report 2009

Key figures

09

F. Hoffmann-La Publ shed Roche Ltd 4070F Basel, Switzerland Hoffmanna Roc Š 2010

Roche Annual Report

All trademarks are legally protected. www.roche.com

Excellence in Science Roche i ance Report 2009 Roche | Annual

77 000 0 846 000 844

00_Umschlag_ausgeschossen_ENG indd 1

EE

1 2 3 4 5

Key figures indexed to 2007 = 100.

Before exceptional items.

Proposed by the Board of Directors.

Development phase I to IV. For calculation of the Eco-Efficiency Rate see: www.roche.com/environment

Figures for 2007 as in Annual Report 2008.

For a full index of Global Reporting Initiative (GRI) indicators used in the report see: www.roche.com/reporting_and_indices

29 01 2010 14:20:50

Key figures

1 2 3 4 5

Key figures indexed to 2007 = 100.

Before exceptional items.

Proposed by the Board of Directors.

Development phase I to IV. For calculation of the Eco-Efficiency Rate see: www.roche.com/environment

00_L_Roche_AR09_ENG_Key figures indd 1

Figures for 2007 as in Annual Report 2008.

For a full index of Global Reporting Initiative (GRI) indicators used in the report see: www.roche.com/reporting_and_indices

29 01 2010 14:20:10

The year 2009 in brief

Group • Group sales increase by 10% 1 to 49.1 billion Swiss francs (8% in Swiss francs; 7% in US dollars).

Both divisions gain market share.

• Operating profit before exceptional items increases by 14% (8% in Swiss francs) to 15.0 billion Swiss francs due to strong sales growth and continuing productivity improvements; at the same time investments in research and development increase by 12% to 9.9 billion Swiss francs.

• Effective 26 March 2009, Roche obtains full ownership of Genentech for a price of 47.0 billion US dollars, or 52.7 billion Swiss francs. Genentech integration has been completed.

• Net income of 8.5 billion Swiss francs, down by 22% compared with the previous year due to exceptional items relating to the Genentech transaction and integration.

• Excluding exceptional items, the Genentech transaction is already contributing to income: income attributable to Roche shareholders increases by 9% to 9.8 billion Swiss francs.

• Core EPS at constant exchange rates 20% above 2008 (10% in Swiss francs).

• Board proposes a dividend increase of 20% to 6.00 Swiss francs, the 23 rd consecutive year of dividend growth; this would increase the payout ratio to 53%.

Pharmaceuticals

• Pharma sales grow by 11% (8% in Swiss francs; 8% in US dollars), almost twice the global market • • • •

growth rate, driven by leading cancer medications and Tamiflu (influenza medicine) as well as Lucentis (ophthalmology medicine).

Tamiflu sales grow sharply to 3.2 billion Swiss francs following substantially increased demand during the pandemic influenza A(H1N1) virus (‘swine flu’) outbreak.

Operating profit margin before exceptional items increases 1.2 percentage points at constant exchange rates (+0.2 percentage points in Swiss francs).

Strong R&D pipeline with ten new molecular entities in late-stage clinical testing; six new compounds entered phase III clinical trials in 2009.

Actemra approved in US for treatment of rheumatoid arthritis in January 2010.

Diagnostics • Sales increase by 9% (4% in Swiss francs and 4% in US dollars) to 10.1 billion Swiss francs, more than twice the market growth rate.

• Operating profit margin at constant exchange rates increases 0.4 percentage points (–0.4 percentage points in Swiss francs).

Outlook • Full-year 2010 sales for Pharmaceuticals and the Group expected to grow in the mid-single-digit range 2.

• Expected decrease of Tamiflu sales from 3.2 to 1.2 billion Swiss francs.

• Diagnostics sales expected to grow well ahead of market.

• Planned research and development expenses will decline slightly in 2010 compared to 2009.

• Roche confirms target of double-digit Core Earnings per Share growth 3 in 2010.

• Based on the strong operating free cash flow, Roche expects to reduce debt progressively and to return to a net cash position by 2015 while maintaining its attractive dividend policy.

1 Unless otherwise stated, all growth rates are in local currencies.

2 Without Tamiflu sales.

3 At constant exchange rates.

Barring unforeseen events.

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29 01 2010 10:14 03

Pharmaceuticals pipeline | Focused on compounds with first-in-class or best-in-class potential Phase I Project ID

Phase II

Project/Product

Indication

Project/Product

Indication

RG4733

γ-secretase inh

solid tumours

Indication

RG435

Avastin

multiple myeloma

RG105

MabThera/Rituxan

indolent NHL maint, 1st-line

RG7160

anti-EGFR huMAb

solid tumours

RG435

Avastin

metastatic melanoma

RG340

Xeloda+Avastin

adj colon cancer

RG7167

CIF/MEK inh

solid tumours

RG1273

RG7304

—

solid tumours

RG3502

pertuzumab

neoadj breast cancer, HER2+

RG340

Xeloda

adj breast cancer

trastuzumab-DM1

metastatic BC, HER2+, 3rd-line

RG435

Avastin+MabThera

diffuse large B cell lymphoma

RG7334

anti-PlGF MAb

solid tumours

RG3502

RG7347

anti-NRP1 MAb

solid tumours

RG3616

trastuzumab-DM1

metastatic BC, HER2+, 1st-line

RG435

Avastin

adj colon cancer

hedgehog pathway inh

basal cell carcinoma

RG435

Avastin

prostate cancer

RG7112

MDM2 antag

solid and hematologic tumours

RG3639

dulanermin

cancer

RG3616

hedgehog pathway inh

colocrectal cancer

RG435

Avastin

RG3616

hedgehog pathway inh

ovarian cancer

RG435

Avastin

RG7420

MEK inh

solid tumours

RG7159

anti-CD20 huMAb

non-Hodgkin’s lymphoma

RG435

Avastin+Herceptin

mBC, HER2+, 1st-line

RG7422 RG7321

PI3 kinase inh

solid and hematologic tumours

RG3638

anti-MET huMAb

metastatic NSCLC

RG435

Avastin

adj NSCLC

PI3 kinase inh

solid tumours

RG7433

(ABT-263)

solid and hematologic tumours

RG435

Avastin

met gastric cancer

RG7414

anti-EGFL7 MAb

solid tumours

CHU

topoisomerase I inh

gastric cancer

RG435

Avastin

adj breast cancer HER2–

CHU

anti-Glypican MAb

liver cancer

RG435

Avastin

adj BC, triple negative

RG435

Avastin

mBC HER2–, combo hormonal therapy

RG105

MabThera/Rituxan

RG435

Avastin

ovarian cancer platinumsensitive

RG3648*

Xolair

pediatric asthma

CHU

eldecalcitol (ED-71)

osteoporosis

RG127

Valcyte

cytomegalovirus, extension of treatment

RG3645

Lucentis

retinal vein occlusion

CHU

Epogin (EPOCH)

chemo-induced anemia

Oncology

Project ID

Registration

Project/Product

Oncology

Project ID

Phase III

Inflammation and autoimmune disorders Inflammation and autoimmune disorders

Project/Product

Indication

RG105*

MabThera/Rituxan

chronic lympocytic leukemia, 1st-line

RG105*

MabThera/Rituxan

chronic lympocytic leukemia, relapsed

RG340

Xeloda

adj colon cancer, combo oxaliplatin

adj breast cancer HER2+

RG435*

Avastin

mBC 1st-line combo docetaxel

ovarian cancer, 1st-line

RG435

Avastin

mBC 1st-line combo standard chemotherapies

RG597

Herceptin

met gastric cancer HER2+

RG1415

Tarceva

NSCLC 1st-line maintenance

Oncology

RG667

palovarotene

emphysema

Oncology

RG7413

anti-Beta7 rhuMAb

ulcerative colitis

RG3637

lebrikizumab

asthma

RG7416

anti-LT alpha MAb

rheumatoid arthritis

RG4930

OX40L huMAb

asthma

BTI

VAP-1

inflammatory diseases

RG7415

rontalizumab

systemic lupus erythematosus

RG435

Avastin

mBC, 2nd-line

RG3648

Xolair

chronic idiopathic urticaria

RG435

Avastin

high-risk carcinoid

RG435

Avastin

GBM, 1st-line

RG597

Herceptin

SC formulation, BC HER2+

Virology CHU

serine palmitoyltransferase inh

hepatitis C

CHU

nitazoxanide

hepatitis C

Virology RG3484

HPV16 immunotherapy

cervical neoplasia

RG597

Herceptin

adj BC HER2+, 2-yr treatment

RG7128

nucleoside inh prodrug

hepatitis C

RG1273

pertuzumab

mBC HER2+

RG7227

protease inh

hepatitis C

RG1415

Tarceva

NSCLC EGFR mutationpositive, 1st-line

Cardiovascular and metabolic diseases Cardiovascular and metabolic diseases

RG7089

Y2R peptide agonist

type 2 diabetes

RG1415

Tarceva

adj NSCLC

RG1512

anti-P selectin huMAb

peripheral vascular disease

RG1439

aleglitazar

cardiovascular risk reduction

RG1415

Tarceva+Avastin

NSCLC maint, 1st-line

RG4929

11β-HSD inh

type 2 diabetes

RG7201

SGLT2 inh

type 2 diabetes

RG7159

anti-CD20 huMAb

chronic lymphocytic leukemia

RG7234

11β-HSD inh

type 2 diabetes

RG7204

BRAF inh

malignant melanoma

RG7273

ABCA1 inducer

dyslipidemia

RG3502

trastuzumab-DM1

mBC HER2+, 2nd-line

RG7376

CRAF inh

polycystic kidney disease

RG1594

ocrelizumab

relapsing–remitting MS

RG7418

anti-oxLDL MAb

secondary prevention of cardiovascular events

RG1678

GLYT1 inh

schizophrenia

RG3487

nicotinic α7 receptor agonist

Alzheimer’s disease

mGluR5 antag

treatment-resistant depression

RG7426

(BHT-3021)

Central nervous system

type 1 diabetes RG7090

gantenerumab

Alzheimer’s disease

RG1578

mGluR2 antag

depression

RG1662

GABA-A agonist

Alzheimer’s disease

RG7010

IGF1 PEG

amyotrophic lateral sclerosis

RG7166

triple reuptake inh

depression

RG7351

TAAR1 partial agonist

depression

RG7412

anti-amyloid β-peptide MAb

Alzheimer’s disease

NMDA receptor antag

treatment-resistant depression

anti-factor D MAb

geographic atrophy

EVO Ophthalmology RG7417

Selected abbreviations adj AMD

adjuvant treatment age-related macular degeneration antag antagonist BC breast cancer combo combined with DMARD disease-modifying antirheumatic drug GBM glioblastoma multiforme + HER2-positive HER2 – HER2 HER2-negative HPV human papilloma virus hu humanised

RG105

MabThera/Rituxan

ANCA-associated vasculitis

RG1569

Actemra/RoActemra

JIA, systemic onset

RG1569

Actemra/RoActemra

early rheumatoid arthritis

RG1594

ocrelizumab

rheumatoid arthritis, PJD

RG3648

Xolair

asthma, add-on therapy

Cardiovascular and metabolic diseases inh JIA MAb maint m, met MS NHL NSCLC PJD r SC

inhibitor juvenile idiopathic arthritis monoclonal antibody maintenance treatment metastatic (cancer) multiple sclerosis non-Hodgkin’s lymphoma non-small cell lung cancer prevention of joint destruction recombinant subcutaneous

Inflammation and autoimmune disorders rheumatoid arthritis, DMARD inadequate responders

Virology

Ophthalmology

Others

Inflammation and autoimmune disorders

Central nervous system RG1450

Project ID

Legend

RG1583

taspoglutide

type 2 diabetes

RG1658

dalcetrapib

dyslipidemia

Ophthalmology RG3645

Lucentis

diabetic macular edema

RG3645

Lucentis

AMD, high dose

RG3625

TNKase

catheter clearance

Others

Therapeutic protein, other biologic Small molecule Blue type

First indication

Black type

Additional indications

RG-No. CHU BTI EVO

Roche and/or Genentech managed Chugai managed BioTie opt-in Evotec

Phase I

Initial studies in healthy volunteers and possibly in patients

Phase II

Efficacy, tolerability and dose-finding studies in patients

Phase III

Large-scale studies in patients for statistical confirmation of safety and efficacy

Registration

Marketing application(s) filed in EU, US and/or Japan

*

Approved EU

Current as of January 2010

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29 01 2010 14:20:50

Our Business | Innovation is our answer to medical challenges. Our daily work is saving patients’ lives and helping millions of people around the world through excellence in science.

Focus on unsolved medical problems For more than 110 years Roche has played a pioneering role in healthcare. Today, as the world leader in ­ in vitro diagnostics, we supply a wide range of diagnostic instruments and tests for rapid and reliable ­d isease detection and monitoring by doctors, laboratories and patients themselves. As the world’s largest biotech company Roche has brought many highly effective drugs to market and become the world’s leading supplier of ­p rescription drugs for cancer treatment. Our daily work focuses on disease areas where medical needs are great.

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These include cancers, viral infections, metabolic and central nervous system disorders and inflammatory diseases. Roche is a pioneer in personalised healthcare: we aim to fit treatments as closely as pos­s ible to patients’ needs — to make healthcare better, safer and more cost-effective.

29 01 2010 01:47 05

Contents

Inside cover

Inside cover

K ey figures P harmaceuticals pipeline

1 The year 2009 in brief

4 Letter to Shareholders 10 R oche Group Group results

11

12 Outlook 14 Group strategy

20

P harmaceuticals 21 Pharmaceuticals Division in brief 22 Results 24 Sales review 30 Development highlights 36 Research and development

46

D iagnostics 47 Diagnostics Division in brief 49 Results 52 Business area highlights 57 Research and development Governance, Remuneration Report

64 Corporate Corporate Governance 65

75 Remuneration Report

88

Corporate Responsibility 89 In brief 9 0 Responsible practices 97 Patients 104 People 112 Society 114 Safety, security, health and environmental protection Assurance Report

121 Independent GRI statement 122

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29 01 2010 01:47 06

4

Roche Business Report 2009

Letter to Shareholders

Letter to Shareholders

Franz B. Humer

Dear Shareholders Despite the sustained global financial and economic crisis, 2009 was a very successful year for Roche. Sales in both the Pharmaceuticals and the Diagnostics Division grew twice as fast as the market. Group sales increased by 10% in local currencies to 49.1 billion Swiss francs, mainly driven by our leading medicines to treat patients with cancer, viral infections, age-related blindness and other serious diseases. Sales of the influenza medicine Tamiflu, at 3.2 billion Swiss francs, also contributed significantly to revenue growth.

Operating profit before exceptional items grew even more strongly than sales, advancing 14% in local currencies to 15.0 billion Swiss francs.

2009 will be remembered as one of the most important years in your company’s long history. Following the merger agreement with Genentech in March 2009 and the rapid finalisation of the transaction, we were able to complete the integration by the end of the year. By combining Roche and Genentech we are not only increasing operational efficiency but also promoting internal knowledge transfer. We are committed to strengthening the Roche Group’s innovative power in the long term and to providing patients with innovative medicines through research of the highest quality.

Excellent research is and will remain a basic requirement for the development of therapies that are decisive for patients’ health and quality of life. After concluding the Genentech integration we will continue to systematically pursue diverse research approaches for innovative healthcare solutions. This creates scope for creativity and increases the chances of devising sustainable medical and therapeutic progress. For this reason Genentech Research and Early Development will continue to function as an independent unit.

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29 01 2010 10:15:43

5

Severin Schwan

In addition, combining the activities of the two companies in the areas of product development, production and sales has already generated significant increases in productivity. Our aim is to achieve pre-tax annual savings of approximately 1 billion Swiss francs by 2011.

The operating free cash flow of the Group increased by 27% to 15.7 billion Swiss francs despite significant negative currency effects. Roche’s strong operating performance is also clearly reflected in Core Earnings per Share, which advanced 20% in local currencies (10% in Swiss francs).

As a result of exceptional costs of 2.7 billion Swiss francs, which were primarily integration-related, the Group’s operating profit in 2009 declined by 5% in local currencies (12% in Swiss francs) to 12.3 billion Swiss francs. Exceptional items also impacted net income, which declined by 22% compared with the previous-year period to 8.5 billion Swiss francs. Excluding exceptional items, net income attributable to Roche shareholders increased by 9%.

In view of Roche’s strong full-year operating results, at the Annual General Meeting the Board of Directors will propose an increase of 20% in the dividend for 2009 to 6.00 Swiss francs per share and non-voting equity security (2008: 5.00 Swiss francs). Subject to your approval, this will be the 23 rd consecutive annual dividend increase.

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29 01 2010 10:15:44

6

Roche Business Report 2009

Letter to Shareholders

The rapid spread of the pandemic A (H1N1) influenza virus (‘swine flu’), which began in April 2009, presented a major challenge not only for governments worldwide, but also for Roche during the past year. We have been supporting the World Health Organization (WHO) and national governments in global efforts to fight the new virus. In May Roche announced that an additional 5.65 million treatment courses of Tamiflu would be donated to replenish the WHO’s regional and rapid-response stockpiles. We had previously granted sublicences to three manufacturers to produce generic oseltamivir for pandemic use in China, India and specified developing countries, to ensure that local populations in these areas have access to the medication. In addition, in July we initiated the Tamiflu Reserves Program to further improve Tamiflu access in developing countries. In response to the increased WHO pandemic threat level, our network of manufacturing partners scaled up production to approximately 33 million treatment courses per month, and we are now able to supply up to 400 million packs annually, if required.

The Roche Group received significant recognition for achievements in several areas during the past year.

The Dow Jones Sustainability Indexes named Roche the new ‘Super Sector Leader’ in Healthcare, ranking us as the most sustainable healthcare company worldwide. Roche and Genentech were also again voted ‘best employer’ in a number of countries.

We would like to take this opportunity to thank the more than 80,000 Group employees worldwide for the outstanding dedication and professionalism during this eventful and challenging time.

Scientific excellence and innovation in our core pharma and diagnostics businesses will continue to be the foundation of our success. Aside from oncology, we are developing new therapeutics for metabolic and autoimmune diseases, viral infections and disorders of the central nervous system. As the world’s largest biotech company we have one of the most promising R & D pipelines in the world. From a total of 59 new molecular entities in clinical testing, ten are already in late stage development — which is remarkable by any standards in our industry. In the last year alone, six new compounds entered late phase development, including potential new therapies for breast cancer and type 2 diabetes.

During the year we published exciting early phase clinical trial data on a targeted treatment and com­ panion diagnostic in malignant melanoma patients whose cancer cells carry a specific genetic mutation; malignant melanoma is the deadliest form of skin cancer. The new compound effectively slowed tumor progression and increased patients’ quality of life. This is a beacon of hope in the fight against a cancer that until now has been regarded as virtually untreatable.

Among the key achievements in our Diagnostics Division are the start of the rollout of the cobas 8000 modular analyser series for large medical laboratories and the launch of new products in the Accu-Chek line of blood-glucose monitors for people with diabetes.

At the end of 2009 William M. Burns, CEO of the Pharmaceuticals Division, Jürgen Schwiezer, CEO of the Diagnostics Division, and Jonathan K.C. Knowles, Head of Roche Group Research, left the Corporate Executive Committee as planned. Each of them has made significant contributions to Roche’s success and helped write an important chapter in the company’s history. Every generation of managers has the task of ensuring Roche’s healthy future as an independent company. Bill Burns, Jonathan Knowles and Jürgen Schwiezer have fulfilled this task in an exemplary manner driven by profound conviction. They have

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29 01 2010 10:15:44

7

Bringing Genentech fully into the Roche Group is a major step on the road to ­creating a stronger, even more innovative organisation significantly contributed to Roche’s strong market position and success. On behalf of the entire Board of Directors and the Corporate Executive Committee, we would like to thank them for their many years of invaluable service, loyalty to Roche and for the great working relationship we enjoyed.

In view of their outstanding industry knowledge, the Board of Directors will propose appointing William M. Burns and Arthur D. Levinson, Chairman of Genentech Board of Directors, to the Board of Directors of Roche Holding Ltd at the Annual General Meeting on 2 March 2010.

Prof. Horst Teltschik and Peter Brabeck have decided not to stand for re-election at the 2010 Annual General Meeting. We are very grateful for their valuable contributions to the company over a period of many years.

Barring unforeseen events, we expect sales in 2010 for the Pharmaceuticals Division and for the Group to increase in the mid-single-digit range in local currencies 1. In the Diagnostics Division, we expect full-year sales to grow considerably ahead of the market. Furthermore, we are aiming to achieve double-digit Core Earnings per Share growth at constant exchange rates in 2010. We anticipate that we will already have repaid 25% of the debt raised to finance the Genentech transaction by the end of 2010. Based on the Group’s strong operating free cash flow, Roche expects to return to a net cash position by the end of 2015.

We will simultaneously maintain our attractive dividend policy.

Franz B. Humer Chairman of the Board

Severin Schwan Chief Executive Officer

1 Excluding Tamiflu sales.

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29 01 2010 10:15:44

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28 01 2010 23:35:27

She’s working on a starvation diet

for aggressive brain tumours Roche is tackling some of modern medicine’s greatest challenges in its search for medicines to combat serious illnesses for which no effective treatment exists. It’s a quest that requires both sophisticated technological capabilities and deep insights into molecular biology. To select optimal targets for drug treatment, you first need to understand the complex biological mechanisms driving a disease. In the case of Avastin, the targeted blockade of a blood-vessel growth factor — an approach first developed

by Genentech scientists — starves tumours of the nutrients and oxygen they need to grow and spread.

This has fundamentally changed the way we fight cancer. Avastin is currently approved to treat five types of cancer and is being investigated as a possible treatment in over 30 different tumour types, giving hope to thousands of patients.

Avastin is a monoclonal antibody used to treat advanced colorectal, breast, non-small cell lung and kidney cancer. In 2009 it was also approved in the US and eleven other countries for the treatment of relapsed glioblastoma multiforme, the most aggressive type of brain tumour.

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28 01 2010 23:35:32

Roche Group | Very strong operating performance in 2009. Group sales, ope足 rating profit (before exceptional items) and Core Earnings per Share increased by double digits. Roche anticipates another double-digit rise in Core EPS in 2010.

The Group remains firmly focused on prescription drugs and in vitro diagnostics.

Following the successful integration of Genentech, Roche is better equipped than ever to be a healthcare innovator.

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29 01 2010 10:17:18

11

Roche Group Strong sales and trading results Total sales grew by 10% in local currencies (8% in Swiss francs; 7% in US dollars) to 49.1 billion Swiss francs, with the Pharmaceuticals Division accounting for 80% of Group sales and the Diagnostics Division contributing 20%. Sales growth in both divisions exceeded market growth.

Sales by the Pharmaceuticals Division increased 11% in local currencies (8% in Swiss francs; 8% in US dollars) to 39.0 billion Swiss francs or almost double the global market growth rate. Demand for the Group’s cancer medicines Avastin, Herceptin, MabThera/Rituxan, Tarceva and Xeloda continued to grow strongly. Additional major growth drivers in the Pharmaceuticals Division were Tamiflu in virology and Lucentis in ophthalmology.

The Diagnostics Division achieved sales growth of 9% in local currencies (4% in Swiss francs; 4% in US dol­ lars) to 10.1 billion Swiss francs, thereby strengthening the divisions leading market share of around 20%.

The Group’s operating profit before exceptional items increased by 14% in local currencies (8% in Swiss francs) to 15.0 billion Swiss francs. Operating profit in local currencies grew 15% to 14.2 billion Swiss francs before exceptional items in the Pharmaceuticals Division and 12% to 1.2 billion Swiss francs in the Diagnostics Division.

At constant exchange rates, the Group’s operating profit margin before exceptional items increased 1.0 percentage points, with the Pharmaceuticals Divi­ sion improving 1.2 percentage points and the Dia­ gnostics Division 0.4 percentage points. Due to an unfavourable combination of exchange rate move­ ments, however, the Group’s operating profit margin before exceptional items in Swiss francs increased only slightly, by 0.1 percentage points to 30.6%, with the Pharmaceuticals Division improving 0.2 percent­ age points to 36.3% and the Diagnostics Division decreasing 0.4 percentage points to 11.9%.

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The Group’s operating free cash flow increased strongly, rising 34% in local currencies (27% in Swiss francs) to 15.7 billion Swiss francs. The Group’s free cash flow remained strong in 2009, increasing by 3.9 billion Swiss francs to 8.9 billion Swiss francs.

Core EPS, which excludes exceptional items and amortisation and impairment of intangible assets, increased 20% in local currencies (10% in Swiss francs).

Significant impact of Genentech integration and changes in Group organisation Effective 26 March 2009, the Group obtained full ownership of Genentech. Subsequently, the Group commenced a restructuring of its US Pharmaceuticals business as well as a number of global functions.

During 2009 restructuring and integration costs of 2.4 billion Swiss francs were incurred, mainly in connection with the discontinuation of a construction project at the manufacturing site at Vacaville, California, termination costs for the closure of manufacturing operations at Nutley, New Jersey, the closure of the research and development site at Palo Alto, California, and costs associated with the consolidation of the US administrative functions in South San Francisco.

Approximately 1.8 billion Swiss francs of these excep­ tional operating expenses are non-cash items related mainly to impairments of manufacturing assets.

The Group financed the Genentech transaction by a combination of the Group’s own funds, bonds, notes and commercial paper. The Group raised net pro­ ceeds of 48.2 billion Swiss francs through a series of bond and note offerings. As a consequence, interest expenses increased substantially in 2009, and financing costs exceeded financial income by 1.7 bil­ lion Swiss francs. By the end of 2009, the Group had already repaid debt of 6.9 billion Swiss francs.

Compared to 2008, net income decreased by 22% to 8.5 billion Swiss francs, primarily due to exceptional items. Net income attributable to Roche shareholders declined 13% to 7.8 billion francs. Excluding excep­ tional items, net income was down 3% and net income

29 01 2010 10:17:18

12

Roche Business Report 2009

Roche Group

attributable to Roche shareholders was 9% higher compared to 2008.

The net debt position of the Group is 23.9 billion Swiss francs, a movement of 40.6 billion Swiss francs from a net cash position of 16.7 billion Swiss francs on 31 December 2008 due to the 52.7 billion Swiss francs used in the Genentech transaction.

We expect to repay 25% of the debt raised to finance the Genentech transaction by the end of 2010.

By 2011 the Group aims to achieve pre-tax annual synergies of approximately 1 billion Swiss francs.

Based on the Group’s strong operating free cash flow, we expect to reduce debt progressively and to return to a net cash position by 2015. We will simulta­ neously maintain our attractive dividend policy.

Outlook Barring unforeseen events, Roche expects sales in 2010 for the Pharmaceuticals Division and for the Group to increase in the mid-single-digit range in local currencies (excluding Tamiflu). In the Diagnostics Division, we expect full-year sales to grow significantly ahead of the market. Despite an anticipated decrease in Tamiflu sales from 3.2 to 1.2 billion Swiss francs, we are aiming to achieve double-digit Core Earnings per Share growth at constant exchange rates.

Roche expects research and development expendi­ tures to decline slightly in 2010. However, the Group’s focus remains firmly on innovation, and it will continue to invest to support its rich pharmaceuticals development pipeline, which currently includes ten new molecular entities and 30 additional indica­ tions for existing products in late-stage development.

Over the next 12–18 months the Pharmaceuticals Division expects to file marketing applications for several major line extensions of our key cancer medi­ cines including Avastin, MabThera/Rituxan and Xeloda, as well as for taspoglutide for type 2 diabetes.

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29 01 2010 10:17:18

13

Corporate Sustainability: key achievements in 2009 Responsible

Named Healthcare Super Sector Leader in Dow Jones Sustainability Indexes (DJSI).

practices

Reselected for the DJSI World and STOXX indices and the FTSE4Good index.

Produced five new position papers on: stem cells and cloning; nanotechnology; biobanks; personalised healthcare; and the value of our products and services.

Launched Group-wide phone line and web-based system for reporting violations of our Code of Conduct.

Developed new Supplier Code of Conduct to describe our requirements in ethics; safety, health an environment; innovation; supplier diversity; economic sustainability and social responsibility.

Patients and access

OneWorld Health completed first screening of Roche’s chemical compound library

to healthcare

to find new drugs to treat diarrhea.

Joined a public-private partnership with Novo Nordisk and the World Diabetes Foundation to improve care for children with diabetes in Africa.

Donated 5.65 million additional Tamiflu courses to replenish WHO stockpiles.

Launched Tamiflu Reserves Program to increase access in developing countries.

Provided free treatment to 40,500 patients in the US through the Roche/Genentech Access programmes.

Disclosed all financial and in-kind support for patient organisations on our website.

People

Global employee Listening to You survey resulted in 91% of employees expressing job satisfaction at Roche.

Genentech voted Science magazine’s top employer for the seventh time.

Rolled out globally aligned performance management and compensation principles and began to align these between Genentech and Roche.

Expanded global leadership programme portfolio, providing key programmes at every stage in the leadership development and talent pipeline.

Society

Launched new Corporate policy on philanthropic donations and non-commercial sponsorship.

Launched cancer awareness campaign in rural South Africa, which trains nursing staff, offers free screening for breast, cervical and prostate cancers, and raises awareness of the disease.

Safety, health and

Produced manual on energy efficient design standards for our buildings.

environmental

Launched e-learning programme on safety, security, health and environmental protection

protection

for all employees.

Launched the Roche Environmental Awareness in Chemical Technology (REACT) programme to reduce the environmental impact of our products.

To learn more about Roche’s achievements in these areas, see the Corporate Responsibility section of this report on pages 88–120.

05_L_Roche_AR09_ENG_Group indd 13

29 01 2010 10:17:18

14

Roche Business Report 2009

Roche Group

Group Strategy

At Roche we focus on developing medicines and diagnostics that will help patients live longer, better lives. We strive to address unmet medical needs through excellence in science. With Genentech now fully integrated into the Roche Group, our research and development teams can collaborate on projects and share resources as never before. As part of the integration, however, we have also ensured that our future organisation will maintain the diversity of approaches essential for successful innovation.

05_L_Roche_AR09_ENG_Group indd 14

29 01 2010 10:17:18

15

The Roche Business Model: Changing the practice of medicine Our Focus

Fitting treatments to patients

Our Distinctiveness

Excellence in science

Our Delivery

Value for all stakeholders

Roche Group Business While the demand for new and improved treatments keeps growing, so does the pressure to control healthcare costs. In this changing and challenging environment we seek to develop medically differentiated products — medicines and diagnostics offering significant clinical and health economic benefits over existing options. To advance this goal, we have refined our business model along three dimensions: Our Focus, Our Distinctiveness and Our Delivery.

Our Focus Our success as a company is built on scientific discovery and innovation. We focus on prescription pharmaceuticals and in vitro diagnostics and have no intention of branching out into other healthcare sectors such as generics, over-the-counter medi­ cines or medical devices.

Innovation is essential to addressing the many medi­ cal needs that are still unmet. Despite significant progress in the fight against some of mankind’s most serious diseases, there are still some 5,000 diseases for which no treatment exists. And patients’ response rates to many available treatments are unsatisfactory.

Today, breakthroughs in science and technology are transforming our understanding of disease biology and promise to transform the practice of medicine.

At Roche we are working to harness these discoveries to make tomorrow’s treatments safer, more effective and more personalised — to better fit them to patients’ genetic profiles and other characteristics.

05_L_Roche_AR09_ENG_Group indd 15

We believe that medically differentiated products are more likely to obtain regulatory approval and be accepted by patients, physicians and payers.

Our Delivery Roche aims to benefit all stakeholders: • We want to improve the treatment options available to patients and doctors, enable medical laboratories to work more efficiently and help societies contain healthcare costs. We seek to ensure that people who need our medicines and diagnostics have access to them (see pages 97–101).

• People who work at Roche have a chance to make their mark and improve lives. We seek to provide every Roche employee with opportunities to contribute, excel, learn and grow. In 2009 Roche and Genentech again received ‘best employer’ awards in a number of countries.

• We aim to provide our investors with a Total Shareholder Return in the top quartile of our industry peer set.

• We conduct our businesses responsibly and seek to have a sustainable, positive impact on society and the environment. In 2009 we were rated as the new Super Sector Leader in Healthcare on the Dow Jones Sustainability Indexes, ranking us as the world’s No. 1 company for sustainability in our sector.

29 01 2010 10:17:18

16

Roche Group

Roche Business Report 2009

Excellence in Science:

Our Distinctiveness

Roche’s approach to innovation and excellence in science is distinctive in four ways:

Page

26 pRED gRED Chugai

We promote a diversity of approaches in our pursuit of innovation. Genentech Research and Early Development (gRED), Pharma Research and Early Development (pRED), Roche Diagnostics and Chugai operate inde­ pendently within the Group, forming the hubs of an innovation network that includes alliances with over 150 outside companies.

Page

32 60 % 50 % 40 % 30 % 20 %

4

5

6

7

2008

2002

8

2006

2000

2004

1998

1992

1996

1994

1990

1988

1982

1986

3

1984

2

1980

1974

1978

1

1976

1972

1970

10 %

9

40

10

60

Page

38 Pharmaceuticals C inical development

Research and early development Ta get Selec ion

Commercial sa ion Market

Lead Genera io

Phase 0

Phase I

Phase II

Phase I I

F l ng

Companion diagnostic easibi ity and ut li y Pat ent se ec ion

B oma ker development Target identi icat on

We take a long-term perspective. Backed by a stable majority ownership dating back over 100 years, we keep our sights on sustainable long-term growth rather than short-term gains. This is reflected in the com­ pany’s incentive system and approach to succession management, and in far-sighted business moves such as our early investments in biotechnology.

Phase IV

We seamlessly integrate our pharma and diag­ nostics capabilities along the whole value chain.

From discovery to commercialisation, our world-class pharmaceuticals and diagnostics research organisations are working together to create better, more costeffective treatment options tailored to patients’ needs.

Dx aunch/Post- aunch assessment Tai o ed prescr b ng and moni oring

Diagnostics

s

ation

way

ener

es

is

ath

og

ln

en

gp

odeg

og

g

na Sig

An

V ra res stance

n

lo

p

d ce

Neuroscience

xC EL

gy

mmun

Ligen

Cell

Sequ

T s ue sta n ng

Ventana

ip

lex

s ba co a s ss

co

ul

unoa

b Rea a s , -tim L ig h eP C C R yc le r

M

mm

M

oo

ll b

iy

Metabolism

s ience

N ic o

is

-cell b o ogy

nee ing

n Ge e s b ay m arr

os

nnate

Sc Life enc ng

DN A

05_L_Roche_AR09_ENG_Group indd 16

s

sig

Mye

e

Inflammation 454

Neur

s ie log

no

de

es

ol

o Ap

at on

e

od

ug

nc

tb

renc

Bi

y

i

an

dd

ed

in er fe

mu y o

Oncology

sc

RN A

Glycoeng

no og

o

se

lic

Arm

tech

In

ba ue

Te c h

ds Nano

ho

uc

54

et

S

Page

M

&

S em Ce s

p

ote

in

an

co

ce

ana ysi

b aly as sis

Pharma

Virology

s

Diagnostics

Our Pharmaceuticals and Diagnostics Divisions have unparalleled expertise in molecular biology. Both divisions have industry-leading intellectual property and technology bases in this field, which they continue to strengthen through internal development and acquisi­ tions. This expertise equips Roche to play a pioneering role in advancing personalised healthcare.

29 01 2010 10:17:19

17

The Roche Management Model: Enabling an innovation-driven culture Our People

Integrity. Courage. Passion.

Our Decision Making

Accountable and transparent

Our Structure

Built for innovation

Roche Group Management Our management model is aimed at sustaining and strengthening our culture of innovation. Like our business model, it has three elements: Our People, Our Decision Making and Our Structure.

Our People Our success in drug research and development, our ability to deploy our combined expertise in pharmaceuticals and diagnostics to advance personalised healthcare and our skill in balancing longer-term investment decisions with near-term deliverables all ultimately depend on one thing: our people (see pages 104–111). Roche’s 80,000 employees represent every continent and virtually every country on the globe, and they bring to their work a diversity of perspectives and experiences that are a key ingredi­ ent of creativity. Respect for diversity, a shared set of standards of integrity, the courage to reach beyond boundaries and a passion about what we do are the elements that bind us together as a company.

Our Structure Our organisational structure is designed for innova­ tion. Our autonomous research and development centres and alliances with external partners foster diversity. The truly global scale of the Group’s research, development, manufacturing and marketing operations provides leverage as well as a global reach for innovation and market success.

Our Decision Making The second component of our management model sets out principles for effective decision making.

Decisions need to be informed by a dialogue that is systematic, fact-based, open and transparent. For every decision there should be a single, accountable decision maker who collects and critically reviews information and competing views. Empowerment is crucial: so far as possible decision making should be delegated to the lowest qualified level in the organisation.

05_L_Roche_AR09_ENG_Group indd 17

29 01 2010 10:17:19

06_Bildstrecke_ENG_S18-19 indd 1

28 01 2010 23:28:10

He’s paving the way

for a new drug for rheumatoid arthritis Searching for a safe and effective new medicine is like looking for a needle in a haystack: only one in many thousands of potential candidates ever completes the journey from idea to pharmacy shelf.

Because we know that a diversity of approaches produces prom­­ising ideas faster, Roche has built a unique innovation network of independent research and development (R & D ) centres. In add­i­­­­­tion to Roche’s pharmaceutical and diagnostic R & D units, it com­p rises Genentech Research and Early Development in the US and Chugai R & D laboratories in Japan, as well as alliances with around 150 partners worldwide. One of the most recent products of successful collaboration of this kind is Actemra/RoActemra, a biological medicine with a new target for use in patients with rheumatoid arthritis. Discovered by Chugai and codeveloped with Roche, Actemra/RoActemra is now being made available to patients all over the world thanks to the global reach of the Roche Group.

Actemra/RoActemra is a first-in-class monoclonal antibody for the treatment of rheumatoid arthritis. It binds to the interleukin-6 receptor and blocks the effects of the signalling protein IL-6, a key driver of inflammation in rheumatoid arthritis.

06_Bildstrecke_ENG_S18-19 indd 2

28 01 2010 23:28:15

Pharmaceuticals | In 2009 demand for key medicines and efficiency gains resulted in double-digit increases in sales and operating profit. Thirteen major marketing approvals and positive results from 16 phase III clinical trials confirmed the division’s growth potential. The Pharmaceuticals Division is focused on translating excellence in science into effective medicines for patients. It combines cutting-edge research at Roche, Genentech in the US, Chugai in Japan and over 150 partners worldwide with global scale and reach in clinical development, manufacturing and commercial operations.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 20

29 01 2010 12:46 58

21

Pharmaceuticals Division in brief

Key figures In millions of CHF

% change in CHF

% change in local currencies

% of sales

Sales

38,996

8

11

100

— United States

14,805

6

5

38

— Western Europe

10,827

5

12

28

— Japan

4,765

43

29

12

— International (Asia—Pacific, CEMAI 1,

8,599

4

13

22

Latin America, Canada, Others) Operating profit before exceptional items

14,154

9

15

36.3

Operating free cash flow

14,923

24

30

38.3

8,896

13

13

22.8

Research and development

1 CEMAI: Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.

Pharma Executive Committee | William M. Burns 1 George B.

Abercrombie 1

31 December 2009

CEO Division Roche Pharmaceuticals North America

Jennifer M. Allerton

Informatics

Silvia Ayyoubi

Human Resources

Ian Clark 2

Global Product Strategy

Jean-Jacques Garaud

Development

Peter Hug

Western Europe

Jonathan K.C.

Knowles 1, 3

Group Research

Dominic P. Moorhead 1

Finance and Controlling

Christopher Murray 3

Commercial Operations, Chugai

Pascal Soriot 2

Commercial Operations, CEO Genentech

Klaus Strein 4

Pharma Research

Jan van

Koeveringe 1

Dan Zabrowski 1 2 3 4

Global Technical Operations Pharma Partnering

To 31 December 2009 — see also Corporate Governance.

From 1 January 2010: CEO Genentech (I. Clark), Chief Operating Ofiicer Pharmaceuticals Division (P. Soriot).

Extended team.

Ad interim.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 21

29 01 2010 12:46 59

22

Roche Business Report 2009

Pharmaceuticals

Pharmaceuticals Division In operational terms, 2009 was another very good year for the Pharmaceuticals Division, with doubledigit increases in both sales and operating profit.

The integration of Genentech proceeded swiftly and was largely complete by the end of the year.

2009 was a transformational year for the Pharma­ ceuticals Division. After obtaining full ownership of Genentech in March, Roche moved swiftly to combine the two companies’ clinical development, manu­facturing and commercial operations. Genentech Research and Early Development remains an inde­ pendent unit within the Roche Group, preserving the diversity of scientific approaches we believe helps to drive innovation. The integration of Genentech was largely complete by the end of the year.

In operational terms, 2009 was another very good year for the Pharmaceuticals Division, with doubledigit increases achieved in both sales and operating profit. Above-market sales growth was driven primarily by strong demand for key medicines from the Group’s virology and oncology portfolios. The global spread of the pandemic A (H1N1) 2009 influenza virus led to unprecedented demand for Tamiflu from the second quarter on. Roche is cooper­ ating with the World Health Organization and national governments to address the threat posed by the new influenza strain and has increased production capacity to ensure adequate supplies of Tamiflu.

In addition to marketing authorisation for the tar­ geted biologic Actemra/RoActemra, for rheumatoid arthritis, in the European Union and, in January 2010, the United States, the division also gained approvals for new indications for marketed products such as Avastin (cancer) and MabThera/Rituxan (cancer, rheumatoid arthritis). Programmes aimed at expanding the use of key products or supporting planned marketing applications for new compounds resulted in positive data from 16 major phase III clinical trials. Some of these results have already been used to support regulatory filings. Good progress was made in the clinical development of promising new product candidates such as ocrelizumab (rheumatoid arthritis, multiple sclerosis), T-DM1 (breast cancer), RG7204 (malignant melanoma), taspoglutide (type 2 diabetes) and RG1678 (schizophrenia). The combined Roche and Genentech

07_L_Roche_AR09_ENG_Pharmaceuticals indd 22

Sales by region

United States 38% (+5%) Asia—Pacific

5% (+20%)

Latin America

6% (+7%)

Other regions

3% (+12%)

CEMAI

8% (+13%)

Western Europe 28% (+12%) Japan

12% (+29%)

Italics = growth rates (local currencies).

CEMAI: Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.

R & D pipeline is now one of the richest in the industry, with eight new molecular entities currently in phase III/registration, 16 in phase II and 35 in phase I clinical development.

Results and main business developments Sales by the Pharmaceuticals Division rose 11% in local currencies (8% in Swiss francs and US dollars) to 39.0 billion Swiss francs, or almost double the global pharmaceuticals market growth rate (6%) 1. The worldwide spread of the pandemic A (H1N1) 2009 influenza virus led to very strong demand for Tamiflu from the second quarter on. Overall, Tamiflu con­ tributed 2.6 billion francs, or 7 percentage points, to full-year Pharmaceuticals sales growth. Excluding Tamiflu, the division’s sales increased 4% 2, driven by demand for key products, including Avastin, Herceptin, MabThera/Rituxan, Lucentis, Mircera, Tarceva, Activase/TNKase and Actemra/RoActemra.

1 Pharmaceutical market growth according to IMS (to end of September 2009).

2 Unless otherwise stated, all growth rates are in local currencies.

29 01 2010 12:47 00

23

The integration of Genentech and operational restructuring made 2009 a transformational year for the Pharmaceuticals Division Year-on-year sales growth in the fourth quarter (8%) was heavily impacted by planned reductions in wholesaler inventory levels in several major markets.

These resulted in part from a comprehensive review of distribution channel exposure against the back­ ground of the global financial crisis. In addition, the harmonisation of distribution systems in the US following the merger of Genentech and Roche Pharmaceuticals triggered a review of wholesaler inventory policy and subsequent destocking.

All regions contributed to the division’s strong sales growth. In the United States growth of key oncology products, Tamiflu and Lucentis more than compen­ sated for lower sales of CellCept and Boniva and the voluntary withdrawal of Raptiva. Sales in Western Europe were driven by demand for Tamiflu, Avastin, MabThera and Mircera, which more than offset declining sales of NeoRecormon. Sales by Chugai in Japan increased strongly due to demand for Tamiflu, key cancer medicines and Actemra. Sales in the International region (Asia—Pacific, CEMAI 3, Latin America, Canada, Others) were driven by demand for Tamiflu, key cancer medicines and Pegasys.

In 2009 the Pharmaceuticals Division’s operating profit before exceptional items advanced significantly faster than sales, rising 15% in local currencies (9% in Swiss francs) to 14.2 billion Swiss francs. This strong increase was driven mainly by the performance of our key pharmaceutical products and ongoing measures to improve efficiency. The operating profit margin increased 1.2 percentage points in local cur­ rencies (0.2 percentage points in Swiss francs) to 36.3% despite increased investments for new product launches and in research and development. The significant increase in R & D costs, up 13% to 8.9 billion Swiss francs, reflects investment in the division’s strong late-stage pipeline, including promising com­ pounds such as dalcetrapib, taspoglutide, pertuzumab and T-DM1. The rise in R & D expenses was also driven by higher impairments of intangible assets. At 302 million, these were 203 million francs higher than in 2008, due primarily to the termination of a number of projects following a comprehensive review of the

07_L_Roche_AR09_ENG_Pharmaceuticals indd 23

combined Roche and Genentech portfolio (see below, p. 37). For more information on the division’s operat­ ing results, see the Finance Report (Part 2 of this Annual Report).

The division continued to generate a strong cash flow in 2009. Operating free cash flow increased 30% in local currencies (24% in Swiss francs) to 14.9 billion Swiss francs, driven by the strong operating per­ formance. Continuous cost management and cashflow generation are key priorities at Roche. This is reflected in ongoing global initiatives to increase operational efficiency and productivity in areas such as information technology, manufacturing and administration. Further stimulus is now being provided by the Genentech integration, which involved a major reorganisation not only of US pharmaceutical operations but also of the division’s global functions.

Synergies are already being generated as a result of the consolidation in South San Francisco of admin­ istrative functions for the combined US organisation, the closure of the Palo Alto site, and the reshaping of global manufacturing operations (see Manufacturing infrastructure, below). We aim to achieve pre-tax annual synergies of approximately 1 billion Swiss francs by 2011.

Manufacturing infrastructure The company is well on track with the integration and optimisation of the combined Roche and Genentech supply network and is reshaping its global manu­ facturing organisation to concentrate activities, align capacity requirements and improve efficiency. As part of the realignment, a second bulk drug production unit at Genentech’s Vacaville (USA) facility will not be commissioned and a new unit at Roche’s Penzberg (Germany) plant will not be completed.

The Pharmaceuticals Division currently operates 24 production sites worldwide. Although consolidation 3 Central and Eastern Europe, Middle East, Africa, Central Asia, Indian Subcontinent.

29 01 2010 12:47 00

24

Roche Business Report 2009

Collaboration with external partners is an integral part of Roche’s R & D strategy.

In all, Roche and Genentech signed more than 100 new partnering agreements in 2009, including product transactions and research and technology collaborations.

Pharmaceuticals

is taking place in manufacturing, Roche continues to invest in its supply network to ensure delivery of marketed medicines and products in clinical develop­ ment. In May Roche opened an additional large-scale, multipurpose chemical production unit in Florence, South Carolina (USA). A new production centre in Kaiseraugst (Switzerland) for the manufacture of medicines in sterile forms, including liquid and lyophilised vials and prefilled syringes, was inaugu­ rated in June. In August Roche exercised an option previously held by Genentech to purchase a biologic manufacturing facility built by Lonza in Singapore.

The state-of-the-art facility, which is mechanically complete, has been merged with an existing biologic manufacturing facility built by Genentech. The com­ bined Singapore operations — Roche’s first such facilities in Asia — will play a key role in the Group’s global manufacturing network. In November the topping-out ceremony for a new technical research and development building in Basel (Switzerland) took place. The new facility, scheduled for completion in 2011, will house a centre for the development of production methods and the manufacture of clinical trials samples.

In response to the worldwide spread of the pandemic A (H1N1) influenza virus, our manufacturing organi­ sation and supply chain management also met the challenge of ensuring adequate Tamiflu supplies to patients worldwide. Roche and its manufacturing partners rapidly increased production capacity for Tamiflu to approximately 33 million treatment courses per month and are now able to supply up to 400 mil­ lion packs annually, if required.

Pharma Partnering update Collaboration with external partners is an integral part of Roche’s R & D strategy. Access to external inno­ vation through licensing and targeted acquisitions is a significant means of strengthening the R & D portfolio and expanding the Group’s technology capabilities.

In 2009 Roche Pharmaceuticals signed a total of 55 new agreements, including four product transactions

07_L_Roche_AR09_ENG_Pharmaceuticals indd 24

and 51 research and technology collaborations. In addition, ten product out-licensing agreements were signed. Among the main transactions were a second licensing agreement with Plexxikon, announced in January, for PLX5568 (RG7376), a novel kinase inhibitor for polycystic kidney disease, and a further agreement with Evotec, announced in March, for phase II development of EVT 101 for treatmentresistant depression. Roche entered into a product development agreement with Tekmira Pharmaceuticals in May to advance Roche’s first two RNA interfer­ ence product candidates into human clinical testing.

Both product candidates will be based on Tekmira’s stable nucleic acid-lipid particle (SNALP) technol­ ogy.

Genentech Partnering completed four product trans­ actions, one outlicensing deal and 46 research and technology collaborations during the year. These include an agreement signed in June with Bayhill Therapeutics for an exclusive collaboration for Bayhill’s promising drug candidate BHT-3021, currently in phase I development for type 1 diabetes. In October Genentech signed an agreement with SurModics, granting Genentech an exclusive licence to use SurModics’ proprietary biodegradable microparticles drug delivery system to develop and commercialise a sustained drug delivery formulation of Lucentis. The agreement also provides Roche and Genentech with opportunities to develop additional compounds for the treatment of ophthalmic diseases.

Sales review — selected key products The Pharmaceuticals Division’s sales growth is broadly based. In 2009 eleven products from six therapeutic areas generated sales of over 1 billion Swiss francs each. Of these medicines, the top three achieved sales of over 5 billion Swiss francs each. Combined sales of the Group’s top 20 pharma­ ceuticals amounted to 34.3 billion Swiss francs, or 88% of total divisional sales.

29 01 2010 12:47 00

25

Eleven products from six therapeutic areas generated sales of over 1 billion francs each

Sales by therapeutic area

Oncology

53% (+8%)

Inflammatory and autoimmune diseases, transplantation

8% (–6%)

Central nervous system

2% (–5%)

Respiratory

3% (+8%)

Metabolic diseases, bone diseases

7% (–4%)

Infectious diseases

1% (–8%)

Cardiovascular diseases

3% (–2%)

Virology

15% (+79%)

Others

2% (–29%)

Renal anemia

3% (0%)

Ophthalmology

3% (+24%)

Italics = growth rates (local currencies).

Sales of the division’s oncology portfolio rose 8% to 20.7 billion Swiss francs in 2009, led by the key products Avastin, Herceptin, MabThera/Rituxan, Tarceva and Xeloda. Together, these five medicines accounted for around half of total pharmaceutical sales. An increase of 79% (+2.5 billion Swiss francs) in sales of antiviral medicines, for a full-year total of 5.9 billion francs, was driven primarily by demand for Tamiflu. Overall sales of the renal anemia portfolio remained stable at 1.3 billion Swiss francs in an increasingly competitive, cost-sensitive market. Sales in the combined inflammation/autoimmune/transplan­ tation portfolio declined to 3.0 billion francs, with the expected negative impact of the CellCept patent expiry in the United States largely offset by the continued success of MabThera/Rituxan in rheuma­ toid arthritis, as well as strong uptake of Actemra/ RoActemra in Japan and its initial launch markets in Western Europe and elsewhere.

Oncology Sales of Avastin (bevacizumab), for advanced colorectal, breast, lung and kidney cancer, and for relapsed glioblastoma (a type of brain tumour), rose 21% to 6.2 billion Swiss francs. Solid double-digit growth was recorded in all regions, driven primarily by continued uptake in colorectal, breast and lung

07_L_Roche_AR09_ENG_Pharmaceuticals indd 25

cancer. Uptake in Japan, where Avastin is currently marketed for advanced colorectal cancer, remains particularly strong and is expected to be enhanced by the product’s recent approval for advanced nonsmall cell lung cancer. Sales growth in the United States is being driven mainly by use in advanced breast cancer and the new indications glioblastoma and kidney cancer, while high penetration rates were maintained in established indications such as lung and colorectal cancer.

Sales of the division’s oncology portfolio rose 8% to 20.7 billion Swiss francs in 2009, led by Avastin, ­Herceptin, MabThera/ Rituxan, Tarceva and Xeloda. Together, these five medicines accounted for around half of total pharmaceutical sales.

Overall sales (oncology and rheumatoid arthritis) of MabThera/Rituxan (rituximab), for non-Hodgkin’s lymphoma (NHL), chronic lymphocytic leukemia (CLL) and rheumatoid arthritis (RA), rose 6% to 6.1 billion Swiss francs. Sustained growth in the oncology segment was driven by uptake in CLL following approval in the EU for first-line treatment 4 and in the relapsed/refractory disease setting in the first and third quarters, respectively. Lower sales growth in the US reflects the high levels of adoption of Rituxan in its cancer indications. Sales in the RA segment were an estimated 900 million Swiss francs, or 15% of the product’s total sales. Growth in this segment is being driven by increasing and earlier use 4 First-line treatment is the initial treatment given after diagnosis.

29 01 2010 12:47 00

26

Pharmaceuticals

Roche Business Report 2009

Excellence in science: A unique diversity of approaches

150

Partners

Understanding the complex biology of disease is the biggest challenge we face in developing new and better medicines and diagnostics. Scientific breakthroughs are most likely to occur when scientists are free to tackle problems from different angles and in different ways.

Our scientists have this freedom. We believe that a diversity of views, cultures and approaches promotes creativity, especially in research and early development. Our own autonomous research and development hubs, augmented by over 150 alliances, provide a natural climate for innovation.

pRED gRED

Chugai gRED Genentech Research and Early Development

pRED Roche Pharma Research and Early Development

NMEs in phase I and II Oncology Inflammation / I mmunology Central nervous system

17 7 11

Ophthalmology

1

Virology

5

Metabolic/Cardiovascular

07_L_Roche_AR09_ENG_Pharmaceuticals indd 26

Following the integration of Genentech, pRED and gRED operate as autonomous innovation centres focusing on new drug targets and new molecular entities (NMEs). They have their own budgets and external networks and take different approaches to turning excellent science into advances in medical care. This new organisational structure preserves the values and culture that enabled the Genentech success story while at the same time strengthening Roche Pharma’s ability to develop novel medicines.

It also makes it easier for our pharmaceuticals and diagnostics researchers to share knowledge and technologies across divisional boundaries.

10

29 01 2010 12:47 01

27

of MabThera/Rituxan in patients with an inadequate response to one or more tumour necrosis factor (TNF) inhibitors. MabThera is well established as the medicine of choice following inadequate response to TNF inhibitor treatment and is currently the market leader in that segment in the EU. Sales of Herceptin (trastuzumab), for HER2-positive breast cancer, increased 8% to 5.3 billion Swiss francs. Solid growth throughout the year was driven by continuing uptake for early breast cancer, espe­ cially in Japan and a number of emerging markets, as well as increasing market penetration in Eastern Europe. Moderate sales growth in the US and Western Europe reflects the high market penetration achieved in both early and advanced breast cancer in these regions.

Sales of Tarceva (erlotinib), for advanced lung and pancreatic cancer, increased 10% to 1.3 billion Swiss francs. Demand is being driven by increased use of the medicine in second-line 5 non-small cell lung cancer (NSCLC) outside the US and in metastatic pancreatic cancer. The main sales contributions came from Western Europe and the United States. The more modest growth in US sales reflects stable penetration in NSCLC and pancreatic cancer, the competitive environment and reserve adjustments taken during the year, primarily for government programmes involving discounts.

Sales of Xeloda (capecitabine), for colorectal, stomach and breast cancer, increased 7% to 1.3 billion francs, driven primarily by strong gains in the United States, Japan and China. Growth is being driven by use in metastatic breast cancer, adjuvant 6 colon cancer and metastatic colorectal cancer. In China the majority of growth is coming from use in patients with advanced stomach cancer, while in Japan Chugai recorded significant additional growth in the fourth quarter following approval of an expanded metastatic colorectal cancer indication.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 27

Virology Global sales of the anti-influenza medicine Tamiflu (oseltamivir) amounted to 3.2 billion Swiss francs in 2009, an increase of 435%, or 2.6 billion Swiss francs, compared with 2008. This very high growth was driven by unprecedented demand from governments and in the retail pharmacy sector following the pan­ demic A (H1N1) 2009 influenza virus (‘swine flu’) outbreak, which began in April and spread rapidly worldwide. Sales for pandemic stockpiling amounted to 1.9 billion francs for the full year.

Roche is cooperating closely with the World Health Organization and governments worldwide to support pandemic preparedness and supply Tamiflu to all patients in need.

Roche is working with national health authorities to expand approval for pandemic use of Tamiflu to include children under one year of age, as well as pregnant and lactating women, and to gain regulatory approval for alternative methods of administering the medicine to infants and young children. The company also continues to cooperate closely with the World Health Organization and governments worldwide to support pandemic preparedness and supply Tamiflu to all patients in need.

Sales of Pegasys (peginterferon alfa-2a), for hepatitis B and C, totalled 1.7 billion Swiss francs in 2009, an increase of 5% over the previous year, driven by market-share gains in major markets. Growth is being helped by new study data demonstrating the superiority of Pegasys over other treatment options, increased use in the treatment of hepatitis B, and increasing rates of hepatitis diagnosis and treatment in emerging markets.

Ophthalmology US sales of Lucentis (ranibizumab), for wet agerelated macular degeneration (AMD, the most common form of age-related blindness) rose 24% to 1.2 billion Swiss francs. Strong double-digit growth throughout 2009 was driven primarily by an increase in the number of injections administered to patients

5 Second-line treatment is given if the initial, or first-line, treatment does not work or if the cancer stops responding to it.

6 Adjuvant treatment is given after surgical removal of the tumour to lower the risk of relapse.

29 01 2010 12:47 01

28

Roche Business Report 2009

Pharmaceuticals

Top-selling pharmaceuticals — Roche Group |

in millions of CHF

6,222

6,087

5,266

3,200

1,655

Avastin

MabThera/Rituxan

Herceptin

Tamiflu

Pegasys

+21% *

+6% *

+8% *

+435% *

+5% *

Active substance:

Active substance:

Active substance::

Active substance :

Active substance :

bevacizumab

rituximab

trastuzumab

oseltamivir

peginterferon alfa-2a

Indications :

Indications :

Indications :

Indications :

Indication s:

colorectal cancer, breast cancer, non-small cell lung cancer, kidney cancer, glioblastoma

non-Hodgkin’s lymphoma, chronic lymphocytic leukemia, rheumatoid arthritis

HER2-positive breast cancer

treatment and prevention of influenza A and B

hepatitis B and C

07_L_Roche_AR09_ENG_Pharmaceuticals indd 28

29 01 2010 12:47 04

29

Above-market sales growth was driven primarily by strong demand for key virology and oncology medicines

1,576

1,560

1,304

1,260

1,198

CellCept

NeoRecormon, Epogin

Tarceva

Xeloda

Lucentis **

–22% *

–11% *

+10% *

+7% *

+24% *

Active substance :

Active substance :

Active substance :

Active substance :

Active substance :

mycophenolate mofetil

epoetin beta

erlotinib

capecitabine

ranibizumab

Indications :

Indication s:

Indications :

Indication s:

Indications :

transplantation

anemia

advanced non-small cell lung cancer, advanced pancreatic cancer

colorectal cancer, breast cancer, stomach cancer

wet age-related macular degeneration

Images are not to scale. * Year-on-year sales growth in local currencies. ** Jointly marketed by Genentech and Novartis.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 29

29 01 2010 12:47 06

30

Roche Business Report 2009

In May 2009 the FDA granted accelerated approval for the use of Avastin for relapsed glioblas­ toma, the most aggressive form of brain tumour. In January 2010 the agency approved Actemra for the treatment of adult patients with rheumatoid arthritis who have not responded to TNF inhibitor therapy.

Pharmaceuticals

in the first and second year of treatment, growth in the number of patients treated for wet AMD, and easier reimbursement.

Anemia In a highly competitive, price-sensitive market, sales of the renal anemia medication Mircera (methoxy polyethylene glycol-epoetin beta), which is now available in over 80 markets worldwide, showed consistent growth throughout 2009, rising 252% to 179 million Swiss francs. Sales are being driven primarily by the success of the product in the pre­ dialysis segment. Combined sales of the Group’s established anemia medicines, Roche’s NeoRecormon and Chugai’s Epogin (epoetin beta), declined 11% to 1.6 billion Swiss francs. Outside Japan the combined market share of Roche’s anemia franchise (Mircera and NeoRecormon) continues to increase despite competition from new market entrants. The decline in NeoRecormon sales of 14% was due mainly to increased price pressure as new biosimilars enter the market. In contrast, the slight decline of Epogin in Japan (–1%) reflects stabilisation of the product’s market share in the dialysis segment and continued expansion in the predialysis setting.

Inflammation and autoimmune disorders Following EU marketing approval in January 2009, by year-end the novel rheumatoid arthritis (RA) medicine RoActemra (tocilizumab, known as Actemra outside Europe) had been launched in ten EU countries, including Germany, France, Spain and the United Kingdom. Sales uptake in the initial European launch markets has been strong. Following launches in additional markets, including Switzerland, India and Brazil, Actemra/RoActemra is now available in over 25 countries worldwide. The response from physicians is very encouraging. Global sales rose 289% to 146 million Swiss francs in 2009. In Japan, where Actemra was approved for RA in adults and for related pedi­ atric indications in April 2008, adoption and market penetration are progressing well, with doctors already using the medicine as a first-line biologic treatment in many patients. Sales in Japan amounted to 98 million Swiss francs, an increase of 146%.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 30

Transplantation Sales of CellCept (mycophenolate mofetil), for the prevention of solid organ transplant rejection, decreased 22% compared with 2008 to 1.6 billion Swiss francs. Sales in the US, the product’s largest market, declined sharply from May onwards following expiry of the US patent. The continuing erosion of US sales through generic competition is being offset to some extent by solid growth elsewhere, especially in Latin America and Japan.

Others At the beginning of April Roche and Genentech announced a phased voluntary withdrawal of the psoriasis medicine Raptiva (efalizumab) from the US market. The decision reflects our commitment to patient safety and was based on the association of Raptiva with an increased risk of progressive multi­focal leukoencephalopathy (PML), a rare and usually fatal disease of the central nervous system.

As part of the measures agreed between the US Food and Drug Administration (FDA) and Genentech, the Raptiva marketing licence was revoked in July.

Genentech continues to monitor patient safety.

Development highlights — key marketed products In 2009 the Pharmaceuticals Division filed 23 major new marketing applications and gained 13 major regulatory approvals (see table, p. 31). Positive results from 16 major phase III clinical trials investigating additional indications for existing key products or with new products such as taspoglutide and ocrelizumab were also reported (see table, p. 33). The following summaries present approvals, filings and major clinical trial results for key marketed products, by indication.

Actemra/RoActemra Approvals | In January 2010 the US Food and Drug Administration (FDA) approved Actemra for the treatment of adult patients with moderately to

29 01 2010 12:47 06

31

In 2009 the division filed 23 major marketing applications and gained 13 major approvals Major regulatory filings in 2009 1 Product

Active substance

Indication and/or dosage form

Avastin

bevacizumab

relapsed glioblastoma multiforme first-line metastatic breast cancer, combination

Country

Switzerland EU, USA, Japan,

with standard chemotherapy ED-71

eldecalcitol

osteoporosis

Epogin

epoetin beta

chemotherapy-induced anemia

Herceptin

trastuzumab

advanced HER2-positive gastric cancer

Lucentis

ranibizumab

macular edema following retinal vein occlusion

MabThera/

rituximab

rheumatoid arthritis — patients with an inadequate

Rituxan

Switzerland Japan Japan EU, Switzerland USA EU, Switzerland

response to a disease-modifying antirheumatic drug; prevention of joint damage 2 first-line chronic lymphocytic leukemia relapsed or refractory chronic lymphocytic leukemia

RG744

methoxy

(Mircera)

poly­e thylene

Tarceva

erlotinib

USA EU, USA, Switzerland

renal anemia

Japan

glycol-epoetin beta non-small cell lung cancer, first-line maintenance

EU, USA, Switzerland

after chemotherapy advanced pancreatic cancer Xeloda

capecitabine

Japan

adjuvant colon cancer, combination with oxaliplatin

EU, Switzerland

Major regulatory approvals in 2009 1 Product

Avastin

Active substance

bevacizumab

Indication and/or dosage form

relapsed glioblastoma multiforme

Country

USA 3,

Switzerland

metastatic breast cancer; combination with docetaxel

EU, Switzerland

first-line metastatic renal cell carcinoma, combination

USA

with interferon alfa-2a unresectable advanced or recurrent non-squamous

Japan

non-small cell lung cancer MabThera/

rituximab

Rituxan

relapsed or refractory chronic lymphocytic leukemia first-line chronic lymphocytic leukemia rheumatoid arthritis, patients with an inadequate response

EU, Switzerland EU USA

to a disease-modifying antirheumatic drug Actemra/

tocilizumab

rheumatoid arthritis signs and symptoms

capecitabine

advanced or refractory colorectal cancer, combination with

EU, USA

RoActemra Xeloda

Japan

oxaliplatin, with or without Avastin 1 Includes supplemental indications; updated to 8 January 2010.

2 A third indication, for use in patients not previously treated with methotrexate, is no longer being pursued (see p. 36).

3 Accelerated approval (FDA).

07_L_Roche_AR09_ENG_Pharmaceuticals indd 31

29 01 2010 12:47 07

32

Pharmaceuticals

Roche Business Report 2009

Excellence in science: Taking a long-term view

10

Biotech milestones

Sales

Estimated Sales

70 %

Sales of biotech medicines

60 %

Biotech medicines, or biologics, today account for 65% of Roche’s pharmaceutical sales — a percentage that has risen significantly in recent years.

Biologics normally have a more targeted effect and are better tolerated than conventional chemical medicines.

50 % 40 % 30 % 20 %

4

5

6

7

8

9

40

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

3

1982

2

1980

1978

1

1976

1974

1972

1970

10 %

10

60

1967

1970s

1978

1982

1986

1990

1997

1998

2004

2008

Roche founds Institute for Molecular Biology

Research on monoclonal antibody production

Roche and Genentech’s first joint project

Recombinant insulin

Roferon-A

Roche acquires 60% of Genentech

MabThera/ Rituxan

NeoRecormon Herceptin

Avastin

Actemra/ RoActemra

Discovering, developing and commercialising new medicines takes time and vision. To stay at the leading edge of innovation, it is essential to invest early in promising new technologies.

We were one of the first pharmaceutical companies to embrace biotechnology, which led to our acquiring a majority stake in Genentech in 1990. Today our biotech products are helping to improve the lives of countless patients in a variety of disease areas, and we are the numberone maker of biologics. We also invested in polymerase chain reaction (PCR) technology when it was still in its infancy — a decision which has helped us to become the global market leader in molecular diagnostics.

One of the technologies we are investing in today is RNA interference (RNAi), which offers a way to target and ‘turn off’ specific genes. RNAi-based medicines could prove a groundbreaking new approach to fighting disease and helping patients.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 32

29 01 2010 12:47 07

33

Avastin is being tested in more than 450 studies in some 30 different tumour types

Positive outcomes achieved in 16 major phase III trials Disease area

Product

Indication

Oncology

MabThera/Rituxan

indolent non-Hodgkin’s lymphoma,

Study

PRIMA

first-line maintenance treatment Avastin

second-line metastatic breast cancer

Xeloda

adjuvant treatment of colon cancer

Herceptin

HER2-positive stomach cancer

Tarceva

non-small cell lung cancer, first-line maintenance treatment

RIBBON-2 NO16968 (XELOXA) ToGA SATURN

(overall survival data) Inflammation

Tarceva + Avastin

non-small cell lung cancer, first-line maintenance treatment

Actemra

rheumatoid arthritis, progression of joint damage

Actemra

juvenile idiopathic arthritis, systemic onset

ocrelizumab

rheumatoid arthritis, patients with inadequate response

ATLAS LITHE, 2-year data TENDER STAGE

to previous treatment with methotrexate Ophthal­

Lucentis

macular edema following central retinal vein occlusion

Lucentis

macular edema following branch retinal vein occlusion

taspoglutide

type 2 diabetes

CRUISE

mology Metabolism

severely active rheumatoid arthritis (RA) who have had an inadequate response to one or more tumour necrosis factor (TNF) inhibitors. Actemra, the first interleukin-6 receptor-inhibiting monoclonal antibody approved to treat RA, may be used alone or in combination with methotrexate or other disease modifying antirheumatic drugs.

Filings | In September Roche filed an application with the EU’s European Medicines Agency (EMEA) to expand the marketing authorisation for RoActemra to include inhibition of the progression of joint damage and improvement of physical function in patients with RA. The EU filing is supported by positive twoyear data from the phase III LITHE trial.

Clinical milestones | An international phase III study (TENDER) met its primary endpoint in Novem­ ber, showing that Actemra/RoActemra significantly improved disease signs and symptoms in children with systemic onset juvenile idiopathic arthritis (sJIA) and confirming the results of earlier Japanese studies. Roche plans to use the data to support global

07_L_Roche_AR09_ENG_Pharmaceuticals indd 33

BRAVO T-emerge 1, 2, 4, 5, 7

regulatory filings in this indication. sJIA, a debilitating and difficult-to-treat disease that affects the whole body, represents an area of high unmet medical need.

Avastin The global development programme for Avastin is one of the most comprehensive undertakings in cancer research since chemotherapy. More than 450 clinical trials worldwide with around 40,000 patients are currently investigating the use of Avastin in approxi­ mately 30 different tumour types (including colorectal, breast, non-small cell lung, brain, stomach, ovarian, prostate and others) and in different settings (advanced or early-stage disease). Results from phase III trials investigating the medicine’s potential in patients with metastatic prostate, ovarian and stomach cancer are expected in 2010.

Approvals | In May the FDA approved the use of Avastin in patients with previously treated (relapsed) glioblastoma multiforme (GBM), the most aggressive form of brain tumour, under the agency’s accelerated approval programme. The EU’s Committee for

29 01 2010 12:47 07

34

Roche Business Report 2009

Following an EU marketing application

by Roche in Sep­ tember, the CHMP issued a positive recommendation in December for the use of Herceptin in advanced HER2positive stomach cancer. The filing was based on strong phase III data showing that Herceptin can extend survival in patients with in­operable HER2-­ positive stomach ­c ancer.

Pharmaceuticals

Medicinal Products for Human Use (CHMP) issued a negative opinion in September regarding Roche’s application for approval of the same indication. The US and EU filings were based on strong clinical results from the phase II BRAIN study. Several investigator-led studies continue to explore the role of Avastin in relapsed GBM. In addition, a large, Roche sponsored phase III study (AVAGLIO) in over 900 patients with newly diagnosed GBM is currently under way with the aim of global filings.

Roche received EU approval in July for Avastin in combination with docetaxel, a commonly used chemo­ therapy, in the first-line treatment of metastatic breast cancer. The expanded indication follows EU approval for combined Avastin and paclitaxel in 2007.

In addition, in August the FDA approved Avastin in combination with interferon alfa-2a for the treatment of metastatic renal cell carcinoma, the most common type of kidney cancer. This follows EU approval of the same indication in 2008.

In November Chugai received approval in Japan for Avastin for the treatment of advanced non-small cell lung cancer.

Filings | Chugai filed a supplementary application in October to expand the approved indications for Avastin in Japan to include metastatic breast cancer, based on the results of the E2100, AVADO, and RIBBON-1 trials and Japanese studies. In November Genentech filed the AVADO and RIBBON-1 data with the FDA, with the aim of converting the current accelerated approval for HER2-negative breast cancer (received in 2008) to full approval and allowing Avastin to be combined with further standard chemotherapies. In November Roche also filed the RIBBON-1 data with the EU authorities.

Clinical milestones | Full results of the first phase III trial of Avastin in early-stage colon cancer (NSABP C-08) were presented at the annual meeting of the American Society of Clinical Oncology (ASCO) in May 7. Although the study did not meet its primary endpoint of improving disease-free survival, the data

07_L_Roche_AR09_ENG_Pharmaceuticals indd 34

suggest that Avastin is active in patients with earlystage colon cancer. Further trials investigating Avastin in the adjuvant setting (early-stage disease, after surgery to remove the tumour) in colon, breast and lung cancer are ongoing. Results are expected in 2010 from a separate, Roche-sponsored international phase III study (AVANT) assessing Avastin in com­ bination with chemotherapy for early-stage colon cancer. In October patient recruitment was completed for BEATRICE, a phase III trial investigating Avastin in early HER2-negative and hormone receptornegative breast cancer.

Full results of RIBBON-2, a phase III trial of Avastin as second-line treatment in women with advanced HER2-negative breast cancer who had previously received chemotherapy, were presented at the San Antonio Breast Cancer Symposium in December. The study met its primary endpoint, showing that women who received Avastin in combination with commonly used chemotherapies as second-line treatment had a 28% improvement in progression-free survival 8 compared with chemotherapy alone. Genentech and Roche plan to file the RIBBON-2 data in the US and the EU in 2010.

Herceptin Filings | Following an EU marketing application by Roche in September, the CHMP issued a positive recommendation in December for the use of Herceptin in advanced (metastatic) HER2-positive stomach cancer. This recommendation was issued in record time, reflecting the high unmet medical need and the strength of the data from ToGA (see below).

Clinical milestones | Results from the international phase III ToGA trial presented at the ASCO meeting in June 7 showed that combining Herceptin with standard chemotherapy (Xeloda or intravenous 5-fluorouracil plus cisplatin) extends the lives of patients with

7 29 May to 2 June.

8 Progression-free survival: the time patients live without their disease getting worse.

29 01 2010 12:47 07

35

Five-year follow-up data confirmed the longterm benefits of one year of adjuvant Herceptin treatment for HER2-positive breast cancer advanced inoperable HER2-positive stomach cancer on average by nearly three months to 13.8 months.

Patients with tumours exhibiting high levels of HER2 experienced even greater benefit from the addition of Herceptin: their lives were extended by more than four months to 16 months on average.

In October Roche and Halozyme announced the start of a phase III trial investigating infusion-free, subcutaneous administration of Herceptin for women with HER2-positive breast cancer. The new subcutaneous formulation is based on Halozyme’s Enhanze technology.

Five-year follow up-data from two large studies evaluating adjuvant Herceptin in HER2-positive earlystage breast cancer were presented at the San Antonio Breast Cancer Symposium in December, con­ firming the long-term benefits of one year of treatment with Herceptin. N9831 and BCIRG006, conducted by the North Central Cancer Treatment Group and the Breast Cancer International Research Group, re-spectively, showed that Herceptin reduced the risk of the cancer returning by about one third, compared with patients receiving chemotherapy alone. In both studies 80% or more of women receiving one year of Herceptin were alive and free of the disease at five years’ follow-up.

Lucentis Filings | Based on the results of BRAVO and CRUISE (see below), in December Genentech filed a supple­ mentary application with the FDA for approval of use in patients with macular edema following retinal vein occlusion.

Clinical milestones | Results of the phase III BRAVO and CRUISE studies announced in July showed that Lucentis improved vision in patients with swelling in the retina (macular edema) due to branch retinal vein and central retinal vein occlusion (RVO), respectively.

RVO occurs when blood flow through a retinal vein becomes blocked, causing swelling (macular edema) and hemorrhages in the retina, which may result in blurring or vision loss in all or part of one eye.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 35

MabThera/Rituxan (oncology) Approvals | Roche received EU approval in February for MabThera in combination with chemotherapy for previously untreated chronic lymphocytic leukemia (CLL) and in August for use in patients with relapsed or refractory disease. CLL is the most common form of adult leukemia. In November the US Food and Drug Administration (FDA) issued a Complete Response to two supplemental Biologics License Applications submitted by Genentech and Biogen Idec, for approval of Rituxan plus standard chemo­ therapy in previously untreated or treated CLL. The FDA has not requested any new data to complete its review of these applications. The companies will continue final label discussions with the agency and remain committed to making Rituxan in combination with chemotherapy an FDA-approved option for people with CLL. Clinical milestones | In September Roche, Genentech and Biogen Idec announced positive results from an international phase III study (PRIMA), showing that MabThera/Rituxan maintenance therapy can signifi­ cantly increase the time until the disease progresses in newly treated patients with advanced follicular lymphoma, a common type of non-Hodgkin’s lym­ phoma. Because PRIMA met its endpoint during a pre-planned interim analysis, the study was stopped early. Roche and Genentech plan to file data from PRIMA with the EU and US health authorities to expand the current marketing approval.

Updated results from the phase III CLL8 study were presented at the annual meeting of the American Society of Hematology in December. They showed that patients with previously untreated CLL survived their disease longer when treated with MabThera/ Rituxan compared with chemotherapy alone. CLL8 is the first trial to demonstrate improved overall survival with a specific first-line treatment for CLL. MabThera/Rituxan (rheumatoid arthritis) Approvals | In October the FDA approved updated Rituxan prescribing information that includes guidance on retreatment of later-stage rheumatoid arthritis

29 01 2010 12:47 07

36

Roche Business Report 2009

Pharmaceuticals

(RA) patients with an inadequate response to antitumour necrosis factor therapies. Clinical trial data on the medicine’s ability to improve physical function and slow joint damage for up to two years were also added. At the same time, Genentech received a Com­ plete Response from the FDA for the use of Rituxan plus methotrexate in patients with moderately to severely active RA who no longer respond to treat­ ment with a disease modifying antirheumatic drug, including methotrexate. Genentech is working with the FDA to determine next steps regarding the filing for this indication.

Filings | In June Roche submitted a combined filing to the EU health authorities to extend the mar­ keting approval for MabThera as a first-line biologic therapy for rheumatoid arthritis (RA). The new indi­ cations being sought are for patients who have had an inadequate response to methotrexate, the current standard treatment option, and for the prevention of joint damage across all RA patient populations. The combined filing followed positive results from the IMAGE, SERENE and MIRROR trials, which showed that MabThera improves the signs and symptoms of RA and can significantly reduce the progression of joint damage. Roche is no longer pursuing approval for a third indication originally included in the com­ bined filing, for use in patients who have not had previous treatment with methotrexate, based on a reassessment of the risk-benefit ratio in this patient population.

Tarceva Approvals | In September the Chinese health author­ ities approved Tarceva for the second-line treatment of patients with advanced non-small cell lung cancer (NSCLC).

Filings | In March Roche and OSI Pharmaceuticals submitted applications to the EMEA and the FDA, respectively, for approval of Tarceva as maintenance therapy in patients with locally advanced or metastatic NSCLC whose disease has not progressed following first-line chemotherapy. Both filings were based on data from the phase III SATURN trial. In December

07_L_Roche_AR09_ENG_Pharmaceuticals indd 36

the FDA’s Oncologic Drugs Advisory Committee recommended against approving Tarceva for this use.

The agency is not bound by this recommendation.

In January, following the submission by OSI of further data, the FDA extended the review period for the application and is now expected to make a decision

by April 2010. In September Chugai filed a supple­ mentary marketing application in Japan for approval of Tarceva in pancreatic cancer.

Clinical milestones | Results from a phase III study (ATLAS) released in February showed that Tarceva in combination with Avastin for first-line maintenance treatment of patients with advanced NSCLC signifi­ cantly delayed the time to disease progression. In July Roche, Genentech and OSI announced that the SATURN trial had met an important secondary end­ point of extending overall survival in patients with advanced NSCLC who received Tarceva immediately after initial chemotherapy. This builds on earlier results from SATURN showing that Tarceva improved progression-free survival, the trial’s primary endpoint.

Xeloda Approvals | In September Chugai received approval in Japan for additional indications for Xeloda and Avastin. Xeloda can now be used in combination with oxaliplatin chemotherapy, with or without Avastin, in the treatment of patients with metastatic colorectal cancer.

Filings | Roche filed an application in the EU in December for approval of Xeloda in combination with oxaliplatin for the adjuvant (post-surgical) treatment of patients with early colon cancer, based on data from the phase III NO16968 (XELOXA) trial.

Research and development To ensure a strong flow of suitable candidate molecules into its development pipeline, Roche has built a unique innovation network of independent research and development centres. In addition to Roche and Genentech, it includes Chugai in Japan and alliances

29 01 2010 12:47 08

37

Roche, Genentech, Chugai and over 150 partners worldwide form a unique innovation network based on a diversity of approaches with more than 150 partner organisations worldwide.

This promotes a diversity of research approaches, as well as enabling access to new technologies and promising drug candidates.

Genentech Research and Early Development (gRED) continues to operate as an independent unit. Similarly, the newly formed Pharma Research and Early Devel­ opment organisation (pRED) enjoys full operational autonomy. gRED continues to be inspired by the values and culture that led to Genentech’s success, while pRED will expand Roche’s capabilities to bring novel medicines to patients. At the same time, subject to existing third-party obligations, both units are now free to share information and technologies that can support and enhance their activities.

Close cooperation between the Pharmaceuticals Division and Roche Diagnostics is a key strategic advantage for our company. The two divisions can share intellectual property, technologies and research findings freely. Among other things, this allows Roche to combine and leverage both divisions’ leadership in the key field of molecular biology. In addition, it enables diagnostics expertise to be seamlessly inte­ grated into all parts of the pharmaceuticals R & D process (see p. 38). This is central to Roche’s goal of advancing personalised healthcare, an approach that seeks to tailor treatments to specific patient sub­ populations based on emerging scientific under­ standing of biology and disease at the molecular level.

Over the next few years the division aims to expand its product portfolio with a new generation of medicines for patients suffering from cancer, meta­ bolic and autoimmune diseases, viral infections and disorders of the central nervous system (CNS).

Late-stage development of promising anticancer compounds such as pertuzumab and T-DM1 (HER2-positive breast cancer), RG7204 (malignant melanoma) and RG7159 (leukemia, lymphoma) is on track. In addition, two novel compounds in the metabolic and CNS portfolios — aleglitazar (cardio­ vascular disease in high-risk type 2 diabetes patients) and RG1678 (negative symptoms of schizophrenia) —

07_L_Roche_AR09_ENG_Pharmaceuticals indd 37

are about to start phase III development. At the same time, we are also exploring new indications and formulations for existing products, including formu­ lations of Herceptin (see above, p. 34) and other biologic medicines that can be administered by more convenient subcutaneous injection instead of intra­ venous infusion.

Following the integration of Genentech’s R & D projects into the Group’s global pharmaceuticals portfolio, Roche and Genentech conducted a comprehensive review of the R & D pipeline in the fourth quarter. This resulted in decisions to terminate a number of early-stage development projects, ome of which have reverted to partner companies.

The terminations, which were primarily driven by clinical data, are part of an ongoing effort to prioritise resources towards a highly differentiated development portfolio of first-in-class or best-in-class medicines.

RG7204 is a targeted inhibitor of abnormal BRAF that exemplifies the Roche Group’s personalised healthcare approach. It is currently in late-stage clinical development for malignant melanoma. Roche is developing a ­dia­gn ­ ostic test to identify patients whose tumours carry the abnormal BRAF gene.

At the beginning of 2010 the division’s R & D pipeline included 111 projects in clinical development (phase I to III). Of these, 59 involved new molecular entities (NMEs) and 52 involved additional indications. Ten NMEs are in or about to enter late-stage develop­ ment (see table, p. 40). Thirty projects investigating additional indications for existing products are in phase III. The Pharmaceuticals pipeline is shown in the fold-out inside the front of cover of this report.

Further details are available at www.roche.com.

Oncology Roche’s clinical development pipeline in oncology includes 21 new molecular entities. The Pharma­ ceuticals Division is further strengthening its oncology portfolio through new targeted therapeutic options and expanding into new indications. Four compounds progressed into late-stage clinical testing in 2009.

RG7204 (PLX4032, collaboration with Plexxikon) is a targeted inhibitor of abnormal BRAF that exemplifies the Roche Group’s personalised healthcare approach using biomarkers and diagnostic tools. BRAF is a protein that relays growth signals inside cells. In cer­ tain types of cancer, genetic changes (mutations)

29 01 2010 12:47 08

38

Pharmaceuticals

Roche Business Report 2009

Excellence in science: Seamless collaboration

1

Process

As a leading healthcare company with strengths in pharmaceuticals and diagnostics, we are well equipped to advance personalised healthcare. The organisational realignment implemented in our Pharmaceuticals and Diagnostics Divisions over the last several years enables them to collaborate seamlessly along the whole value chain, from discovery to commercialisation. This is particularly important since personalised healthcare starts early in the drug development process. Our Diagnostics Division is there from the beginning, with technologies and expertise to help identify potential drug targets, screen out less-promising candidate compounds and select suitable patients for clinical trials. In some cases collaboration results in a drug coupled with a companion diagnostic to guide treatment.

Pharmaceuticals Clinical development

Research and early development Target selection

Lead generation

Discovery phase

Biomarker development Target identification

Commercialisation Market

Phase 0

Phase I

Exploratory phase

Phase II

Proof of concept

Companion diagnostic feasibility and utility Patient selection

Phase III

Filing

Phase IV

Confirmatory phase

Dx launch/post-launch assessment Tailored prescribing and monitoring

Diagnostics

07_L_Roche_AR09_ENG_Pharmaceuticals indd 38

29 01 2010 12:47 08

39

Close cooperation between the Pharmaceuticals and Diagnostics Divisions is a key strategic advantage for Roche lead to production of abnormal BRAF that is always active and causes uncontrolled proliferation of cancer cells. Mutated BRAF is found in approximately 50% of malignant melanomas, the most deadly form of skin cancer. Following positive phase I results, a phase II clinical trial was initiated in September to investigate RG7204 in previously treated patients with BRAF mutation-positive malignant melanoma, and a phase III trial in previously untreated patients began in January 2010. A diagnostic test is being developed in collaboration with Roche Molecular Diagnostics to identify patients whose tumours carry the abnormal BRAF gene and are therefore most appropriate for treatment with RG7204.

RG7159 (GA101), the first type II, glycoengineered, fully humanised anti-CD20 monoclonal antibody, is currently being investigated in late-stage clinical trials as a potential treatment for chronic lymphocytic leukemia (CLL) and non-Hodgkin’s lymphoma (NHL). Data from phase II studies were presented at the European Hematology Association meeting in June 2009 (CLL) and the American Society of Hematology in December 2009 (CLL and NHL).

A phase III study in patients with CLL was initiated in December 2009.

Pertuzumab (RG1273) is a HER2 dimerisation inhibitor that is being studied in combination with Herceptin and standard therapy in HER2-positive breast cancer. A phase III study (CLEOPATRA) evaluating the addition of pertuzumab to Herceptin and chemotherapy in the first-line treatment of patients with advanced (metastatic) disease and a phase II trial (NEOSPHERE) investigating neoadjuvant (presurgical) treatment with pertuzumab are ongoing.

Trastuzumab-DM1 (T-DM1, RG3502), a novel anti­ body-drug conjugate that combines an anti-HER2 monoclonal antibody and a powerful cytotoxic agent, is being investigated in the second- and third-line treatment of metastatic HER2-positive breast cancer.

A phase III trial (EMILIA), investigating T-DM1 in the second-line treatment setting, began in the first quarter. Positive results from a phase II study

07_L_Roche_AR09_ENG_Pharmaceuticals indd 39

(TDM4374g), presented at the San Antonio Breast Cancer Symposium in December, showed an objective response (tumour shrinkage) in 33% of women with advanced (metastatic) HER2-positive breast cancer that had worsened following previous treatment.

RG3616 (GDC-0499; collaboration with Curis) is a novel compound targeting the hedgehog signalling pathway, which is thought to be implicated in several cancers. Following positive phase I results, a pivotal phase II study investigating RG3616 as a potential treatment for advanced basal cell carcinoma com­ menced in February. RG3616 is also being evaluated in phase II studies as a first-line therapy for meta­ static colorectal cancer and in the maintenance treat­ ment of ovarian cancer.

Inflammation and autoimmune disorders Roche has eight new compounds in development for chronic and progressive autoimmune and inflammatory diseases such as rheumatoid arthritis (RA) and asthma, five of which are in phase II or III clinical test­ ing. Phase III programmes are currently investigating the next-generation anti-CD20 antibody ocrelizumab in several RA settings, including in patients who respond inadequately to the current standard of care, methotrexate, or to tumour necrosis factor (TNF) inhibitors. The first of these, STAGE, in patients who did not respond to treatment with methotrexate, was reported to have met its primary endpoint in December. While overall adverse events reported in this study were comparable between the ocrelizumab and placebo treatment groups, a higher percentage of serious infections was observed in the pooled ocre­ lizumab groups compared with the placebo group. An additional major phase III study (SCRIPT), in patients with inadequate response to TNF inhibitors, is expected to report in 2010. Dosing in the FILM study, in patients not previously treated with methotrexate, has been stopped following reassessment of the riskbenefit profile in this patient population. A phase III programme investigating ocrelizumab in the treatment of lupus nephritis (BELONG) was also discontinued following reassessment of the risk-benefit profile.

29 01 2010 12:47 08

40

Roche Business Report 2009

Pharmaceuticals

Ten new molecular entities in ongoing or planned late-stage studies Compound

Indication

Status

ocrelizumab

rheumatoid arthritis

first phase III study (STAGE) met its primary endpoint

Market potential

best in class

in fourth quarter 2009, results from additional studies expected in 2010 trastuzumab-DM1 pertuzumab

HER2-positive metastatic

phase III started in first quarter 2009

breast cancer

(second-line treatment)

first in class

HER2-positive metastatic

phase III started in 2008

first in class

non-Hodgkin’s lymphoma,

phase III started in fourth quarter 2009

best in class

chronic lymphocytic

(chronic ­lymphocytic leukemia)

breast cancer RG7159 (GA101)

­leukemia RG7204 (PLX4032) malignant melanoma

registration studies started in 2009, January 2010

first in class

RG3616

advanced basal

pivotal phase II started in first quarter 2009

first in class

(GDC-0499)

cell carcinoma

RG1678

negative symptoms of

positive phase II results in fourth quarter 2009,

first in class

schizophrenia

phase III planned to start in 2010

cardiovascular high risk

phase III planned to start in first quarter 2010

first in class

first positive phase III results (T-emerge) in fourth

best in class

aleglitazar

in type 2 diabetes taspoglutide

type 2 diabetes

quarter 2009, additional results expected in 2010 dalcetrapib

dyslipidemia,

phase III enrolment ongoing

first in class

cardiovascular high risk

Metabolic and cardiovascular diseases Roche’s metabolic and cardiovascular portfolio of 12 new molecular entities at various stages of clinical development includes three promising late-stage compounds. Dalcetrapib (RG1658, JTT-705; licensed from Japan Tobacco), is a novel cholesterol ester transfer protein (CETP) inhibitor for the management of cholesterol levels in the blood. Recruitment for the phase III dal-HEART programme is on track. A new imaging study, dal-PLAQUE 2, was announced in the last quarter of 2009, and patient recruitment has commenced. Taspoglutide (RG1583, BIM51077; licensed from Ipsen) is a once-weekly human gluca­ gon-like peptide-1 (GLP-1) hormone analogue for the control of blood glucose levels. In late 2009 initial results from five phase III trials in the T-emerge programme showed that taspoglutide consistently provides powerful and durable glycemic control in

07_L_Roche_AR09_ENG_Pharmaceuticals indd 40

patients with type 2 diabetes. Aleglitazar (RG1439) is a peroxisome proliferator-activated receptor (PPAR) co-agonist with demonstrated effects on blood fats, blood pressure and blood glucose for the reduction of cardiovascular morbidity and mortality in patients with type 2 diabetes. A phase III programme (ALECAR­ DIO) is expected to begin recruitment early in 2010.

Virology Roche currently has two direct antiviral agents in development for the treatment of hepatitis C: the nucleoside polymerase inhibitor RG7128 (colla­ boration with Pharmasset) and the protease inhibitor RG7227 (ITMN-191; collaboration with InterMune).

Both of these oral agents entered phase IIb studies during the year. RG7128 and RG7227 are being inves­ tigated in combination with Pegasys and Copegus (ribavirin), and in combination with each other in

29 01 2010 12:47 08

41

Cancer is not one disease but a group of more than 100 distinct disorders, each with its own medical challenges an interferon-free regimen. Results from a phase I study (INFORM-1) investigating RG7227 combined with RG7128 in hepatitis C were presented at the annual American Association for the Study of Liver Diseases congress in November. They showed for the first time that an all oral, interferon-free regimen can lead to significant viral suppression in previously untreated patients and patients in whom previous treatment has failed.

Central nervous system The Roche portfolio has 12 novel compounds in development for disorders of the central nervous sys­ tem, including schizophrenia, multiple sclerosis and other serious conditions. One of these compounds is RG1678, a glycine transporter type 1 (GlyT1) inhibitor discovered by Roche. It is being codeveloped globally with Chugai for the treatment of the negative symp­ toms of schizophrenia, an area of high unmet medical need. RG1678 has the potential to enable patients to better establish social relationships and participate in everyday activities, reducing the burden for patients and caregivers alike. In December Roche announced that a phase II trial with RG1678 had met its primary and secondary endpoints, improving both the negative symptoms and the personal and social functioning of patients with schizophrenia. The compound was well tolerated at all doses tested. Roche has now decided to initiate phase III clinical testing, with the first trial planned to start in 2010.

Also in December, Roche and its development partner Biogen Idec reported positive results from a phase II trial with the humanised anti-CD20 monoclonal antibody ocrelizumab (RG1594) in patients with relapsing-remitting multiple sclerosis, one of the lead­ ing causes of neurological disability in young adults.

Ocrelizumab showed a strong effect versus placebo with a highly statistically significant reduction in signs of disease activity as measured by brain lesions, the primary endpoint.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 41

Focus on unmet medical needs Cancer | According to the latest International Agency for Research on Cancer (IARC) estimate, in 2008 over 12 million people worldwide were diagnosed with cancer, and some 7.6 million died of the disease. The IARC anticipates that cancer will surpass heart disease as the leading cause of death worldwide in 2010 and also forecasts that by 2030 there will be over 26 million new cases and 17 million deaths per year from cancer. In Europe alone, one in three people can expect to develop cancer in their lifetime. Cancer is not one disease but a group of more than 100 distinct disorders, each with its own medical challenges.

Non-Hodgkin’s lymphoma | A group of over 30 cancers that affect the lymphatic system. This class of cancer currently affects over 1.5 million people worldwide. Follicular lymphoma accounts for about one in four of all cases of non-Hodgkin’s lymphoma.

It can occur at any time during adulthood, though people are typically diagnosed during their sixties, and it affects as many men as it does women.

The GlyT1 inhibitor RG1678 is being codeveloped with Chugai for the treatment of the negative symptoms of schizophrenia, an area of high unmet medical need. RG1678 has the potential to enable patients to better establish social relationships and parti­cipate in everyday activities, re­ducing the burden for patients and caregivers alike.

Chronic lymphocytic leukemia | The most common type of leukemia in adults, accounting for approximately 25–30% of all forms of leukemia. The incidence of CLL in Western countries is around 2–4 per 100,000, and it is twice as common in men as in women.

Colorectal cancer | Cancer of the large intestine or rectum, which accounts for over 1 million new cases (around 10% of all newly diagnosed cancers) worldwide each year. It is the second most common cause of cancer deaths in Europe and the third most common worldwide.

Kidney cancer | This type of cancer is newly diag­ nosed in around 200,000 people and causes 100,000 deaths worldwide every year, rates that are expected to increase. Renal cell carcinoma accounts for 90% of all kidney cancers.

29 01 2010 12:47 08

42

Roche Business Report 2009

Pharmaceuticals

Breast cancer | The most common cancer among women worldwide. Over 1 million women are newly diagnosed and over 500,000 die from the disease each year. As there are several different types of breast cancer, knowledge of tumour characteristics is important for treatment decisions. Some 20–30% of women with breast cancer have tumours with abnormally high levels of a protein known as HER2.

HER2-positive tumours are particularly aggressive, fast-growing and likely to relapse.

Lung cancer | The most common form of cancer worldwide and the leading cause of cancer deaths.

There are an estimated 1.4 million new cases annually.

Non-small cell lung cancer is the most common form, accounting for approximately 80% of all cases.

Pancreatic cancer | A particularly aggressive disease that is extremely difficult to treat. It kills a higher proportion of patients in the first year after diagnosis than any other cancer. The fifth leading cause of cancer deaths in the developed world, pancreatic cancer claims nearly 80,000 lives every year.

Gastric (stomach) cancer | Accounts for over 1 million new cases and some 800,000 deaths each year, making it the second-largest cause of cancer deaths world­ wide. The vast majority of cases occur in Asia, where, with lung cancer, it is the leading malignancy. Advanced stomach cancer is associated with a poor prognosis; the median survival time after diagnosis is approxi­ mately 10–11 months with currently available therapies.

Anemia | Occurs when the level of red blood cells and/or the hemoglobin they contain falls below normal, starving organs and tissues of oxygen. It is seen in over 80% of patients with chronic kidney (renal) disease, which affects more than 500 million people worldwide. In addition, anemia affects three out of four cancer patients undergoing chemotherapy.

Patients with untreated anemia may need blood transfusions. The potential long-term effects of anemia include cardiovascular disease in renal patients, while in patients with cancer it is associated with diminished quality of life.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 42

Hepatitis B and C | The hepatitis B and C viruses (HBV, HCV), which are commonly transmitted through blood-to-blood contact, cause acute and chronic liver disease, potentially leading to liver failure, cirrhosis and liver cancer. Worldwide, 350 million people are thought to be chronically infected with HBV, a highly infectious virus that is responsible for an estimated one million deaths annually. More than 170 million people around the world are infected with HCV, and 3 to 4 million new cases occur each year. Hepatitis C is the main reason for liver transplantation. A recent study on the HCV-related burden of disease in 22 European countries estimated that between seven and nine million people, or over 1% of the population, are infected with HCV. Influenza, or flu | A highly contagious, debilitating viral illness that occurs mainly in the autumn and winter months in temperate climates and year-round in tropical areas. It can be particularly dangerous for young children, the elderly and people with chronic health problems who are at greater risk of influenza-related complications. Pandemics, or global epidemics, are caused by novel strains of influenza to which people have no immunity. Pandemics occur every 10 to 40 years and have been associated with significant levels of illness and, depending on the viral strain, death. According to the World Health Organi­ zation, the currently circulating pandemic A (H1N1) 2009 influenza virus appears to be as contagious as seasonal influenza and is spreading fast, particularly among people aged 10 to 45 years. The disease is generally clinically mild, but severe illness can occur.

Autoimmune disorders | Occur as a result of a mistaken immune response to the body’s own tissues.

The causes are unknown. Rheumatoid arthritis, multiple sclerosis and lupus erythematosus are among the most common autoimmune disorders, which affect millions of people worldwide.

Rheumatoid arthritis (RA) | A chronic, progressive inflammatory disease of the joints and surrounding tissues that is associated with intense pain, irrevers­ ible joint destruction and systemic complications.

29 01 2010 12:47 09

43

B cells (a type of immune cell) are known to play a key role in the inflammation associated with RA. Several key cytokines, or proteins, are also involved, including TNF alfa, interleukin-1 (IL-1) and inter­ leukin-6 (IL-6). IL-6 has been identified as having a pivotal role in the inflammation process. Around 21 million people worldwide are thought to be affected by RA. Diabetes | Recognised as a global epidemic by the World Health Organization. The International Diabetes Federation estimates that some 360 million people worldwide will have diabetes by 2030. According to the WHO, type 2 (adult onset) diabetes accounts for around 90% of all cases. Uncontrolled type 2 diabetes can lead to severe complications such as cardio­ vascular disease, stroke, blindness, amputations, and kidney failure, resulting in significant healthcare burdens to society.

Schizophrenia | A severe mental disorder character­ ised by profound disruptions in thinking that affect language, perception and the sense of self. According to WHO estimates, schizophrenia affects approxi­ mately 24 million people worldwide and is most com­ mon in adults aged between 15 and 35 years. The symptoms of schizophrenia are broadly categorised as positive, negative and cognitive. Positive symptoms are psychotic behaviours such as hallucinations and delusions. Negative symptoms are associated with disruption of normal behaviour and emotions, such as inability to sustain planned activity or a lack of motiva­ tion and interest in day-to-day living. Cognitive symptoms include trouble focusing or paying attention.

Persistent negative symptoms are a major cause of chronic disability. There is currently no marketed product available to treat the negative symptoms of schizophrenia.

07_L_Roche_AR09_ENG_Pharmaceuticals indd 43

29 01 2010 12:47 09

Together they’re taking aim

with an innovative medicine for skin cancer Roche is not only the world leader in in vitro diagnostics. We also syste­m ­­ atically apply our diagnostic expertise to the research and development of new medicines. This helps us to develop pharmaceuticals that target the biological mechanisms that give rise to cancer. One example is RG7204 (PLX4032), currently being tested in phase II clinical trials as a possible treatment for malignant melanoma, a type of skin cancer.

RG7204 is a novel, highly selective BRAF kinase inhibitor that targets and destroys cancer cells harbouring a specific cancer causing gene mutation called BRAF V600E. To identify those patients whose tumours carry this mutation — and are therefore considered most likely to respond to this targeted medicine — Roche is developing a companion diagnostic test.

RG7204 is a promising compound in development for the treatment of BRAF mutation-positive patients with malignant melanomas, the deadliest form of skin cancer. This oral medicine — a selective kinase inhibitor — is being developed by Roche in collaboration with Plexxikon.

08_Bildstrecke_ENG_S44-45 indd 1

28 01 2010 23:32:27

08_Bildstrecke_ENG_S44-45 indd 2

28 01 2010 23:32:31

Diagnostics | In 2009 sales again grew well ahead of the market, with strong uptake of new products contributing to market share gains in key segments such as immunoassays and tissue diagnostics.

All business areas launched major new products that Roche believes will help drive above-market growth in 2010. Efforts to enhance operational efficiency are ongoing throughout the division and contributed to higher operating profit in 2009. The division will continue and expand these efforts in order to improve productivity and profitability further.

09_L_Roche_AR09_ENG_Diagnostics indd 46

29 01 2010 01:58:39

47

Diagnostics Division in brief

Key figures

Sales

In millions of CHF

% change in CHF

% change in local currencies

% of sales

10,055

4

9

100

— Professional Diagnostics

4,553

4

9

45

— Diabetes Care

2,969

0

6

29

— Molecular Diagnostics

1,183

2

5

12

— Applied Science

870

12

15

9

— Tissue Diagnostics

480

28

29

5

Operating profit

1,198

1

12

11.9

Operating free cash flow

1,152

92

102

11.5

978

4

5

9.7

Research and development

Diagnostics Executive Committee |

31 December 2009

Jürgen Schwiezer 1

CEO Division Roche Diagnostics

Manfred Baier

Applied Science

Roland Diggelmann

Asia—Pacific

Dirk H. Ehlers

Professional Diagnostics

Christian Hebich

Finance and Services

Michael Heuer

EMEA (Europe, Middle East, Africa) and Latin America

Alexander Keller

Global Platforms and Support

Frank Lennartz

Human Resources

Hany Massarany

Tissue Diagnostics

Daniel O’Day 2

Molecular Diagnostics

Frank Pitzer 3

Regulatory Affairs and Quality Management

Claus-Joerg Ruetsch 3

Legal

Michael Tillmann

North America

Robert Yates

Business Development

1 To 31 December 2009 — see Corporate Governance.

2 Chief Operating Officer of Roche Diagnostics since 1 January 2010.

3 Associate member.

09_L_Roche_AR09_ENG_Diagnostics indd 47

29 01 2010 01:58:40

48

Roche Business Report 2009

Diagnostics

Diagnostics Division Roche’s Diagnostics Division is the global leader in the 40 billion US dollar in vitro diagnostics market.

The division strives to develop systems that make testing more efficient and provide results of high medical value.

Roche’s Diagnostics Division is the world’s leading supplier of in vitro diagnostics (IVDs). IVD tests — tests performed in a laboratory or at the point of care on blood and other samples from patients — are a critical source of objective information about health and disease. Roche’s diagnostic instruments and reagents help doctors detect diseases, select appropriate treatments and monitor patients’ responses to care. In addition, scientists use the division’s research products to gain a better understanding of the causes of disease and discover new treatments.

In over 150 countries the division serves customers spanning the entire healthcare spectrum — from hospitals and commercial medical labs, to physicians, to patients with conditions requiring them to self-test.

In 2009 Roche had a 20% share of the global IVD market, valued at an estimated 40 billion US dollars in annual sales. 1

Sales by region

Europe/Middle 53% (+9%) East /Africa Japan Asia—Pacific Latin America

09_L_Roche_AR09_ENG_Diagnostics indd 48

6% (+15%)

North America 26% (+4%) Other

0% (–14%)

Italics = growth rates (in local currencies).

• Together, Roche’s Pharmaceuticals and Diagnostics

Strategic priorities Changing demographics, new technologies and mounting pressure on budgets and pricing are among the trends shaping the healthcare market.

The Diagnostics Division’s strategic priorities are designed to respond to these trends and capitalise on the growth opportunities they present.

• Testing efficiency is one pillar of the division’s business. Roche’s automated diagnostic systems embody decades of engineering innovation.

Future advances will include enhanced workflow integration and IT capabilities supporting electronic patient record management.

• Testing efficiency alone is not enough. Products of high medical value are critical for sustained competitiveness and growth. Novel Roche tests mark significant advances in oncology, cardiology and other major therapy areas. Increased investment in biomarker research and in trials to demonstrate the clinical utility of new tests will yield further innovations.

5% (+0%) 10% (+25%)

•

•

Divisions are working to advance personalised healthcare. Activities are aligned to help increase drug R & D productivity, discover more targeted medicines and drive development of companion diagnostics. This has the potential to ‘revalue’ diagnostics, which inform the majority of clinical decisions yet account for less than 3% of medical spending.

The Diagnostics Division is outperforming the market in the Emerging Seven (E7) countries 2, most notably in China. To accelerate growth further, it is expanding its local organisations and investing in programmes to bring products to market more quickly.

The division intends to improve its profitability further through a combination of strong sales growth and efficiency initiatives targeting virtually every area of operations. This report contains information on progress made in 2009.

1 Figures on market growth, market share and market size are ­e stimates based on company and independent reports and Roche analysis.

2 E7 markets = Brazil, Russia, India, China, South Korea, Mexico and Turkey.

29 01 2010 01:58:41

49

Sales and instrument placements were up strongly in 2009

Results and main business developments In 2009 the Diagnostics Division recorded sales of 10.1 billion Swiss francs, an increase of 9% in local currencies (4% in Swiss francs; 4% in US dollars) over 2008. 3 This was more than twice the estimated IVD market growth rate (3–4%).

All five divisional business areas contributed to sales growth, led by Professional Diagnostics and Diabetes Care. Immunoassays and single-strip blood glucose monitoring systems remained these businesses’ primary growth drivers. Molecular Diagnostics’ core blood screening and virology segments delivered a solid single-digit rise in overall sales. In the Applied Science unit, strong demand for the MagNA Pure and LightCycler product lines fuelled further above-market growth. The Tissue Diagnostics business, acquired in 2008, continued to grow well ahead of the market, driven mainly by its advanced tissue staining portfolio.

Instrument placements were again up significantly for the division as a whole and were a major growth driver.

Geographically, the EMEA 4 and Asia—Pacific regions contributed most to growth, with all five business areas recording solid sales gains in these markets.

Tissue Diagnostics remained the primary growth driver in North America. In Japan Professional Diagnostics and Applied Science grew moderately and Tissue Diagnostics achieved high double-digit growth, but divisional sales there were flat overall, largely due to reduced government IVD reimbursement and lower research funding.

on schedule in the EU and other markets in the second half of the year. Roche expects this major addition to its cobas family of modular Serum Work Area systems to enhance its competitiveness significantly in both clinical chemistry and immuno­ assays. Altogether, the division launched over 20 major products in 2009.

The Diagnostic Division’s operating profit rose 12% in local currencies (1% in Swiss francs) to 1,198 million Swiss francs, and the operating margin at constant exchange rates advanced 0.4 percentage points.

These increases largely reflect sales growth, tight cost management and the significant one-time expenses recorded in 2008, including those relating to the Ventana acquisition. In Swiss francs the margin decreased by 0.4 percentage points, to 11.9%, due to a parti­ cularly unfavourable combination of exchange rate movements. For more information on the division’s operating results, see the Finance Report (Part 2 of this Annual Report).

Divisional sales growth was broad based, extending across all five business areas and all major regional markets except Japan.

All business areas again launched major new products in 2009.

Efficiency gains Initiatives to simplify core processes, consolidate services, streamline product portfolios and reduce time to market are in place at a number of major sites.

In 2009 such initiatives contributed to significant cost savings and helped the division limit headcount growth despite the acquisition of Swisslab and innovatis and despite a substantial sales force increase in China. Notable successes included the consolidation of regional call centres, the creation of shared service centres in North America and reductions in manufacturing costs. Existing and new programmes will be introduced at more sites to improve productivity further and achieve additional cost savings.

Sales in the E7 markets grew 24% and accounted for over 10% of total divisional sales revenues. Increased investment in these markets and strong demand for immunoassays and other leading-edge Roche products contributed to this strong, above-market growth.

The first two modules of the cobas 8000 analyser series for high-throughput laboratories were launched

09_L_Roche_AR09_ENG_Diagnostics indd 49

3 Unless otherwise stated, all growth rates are in local currencies.

4 EMEA = Europe, Middle East and Africa.

29 01 2010 01:58:41

50

Roche Business Report 2009

Diagnostics

Roche’s top-selling diagnostics |

sales in millions of CHF

Accu-Chek Mobile

cobas e 601

2,969

cobas c 501

Cobas TaqMan 48

cobas TaqScreen MPX Test

1,627

1,275

566

314

Accu-Chek blood glucose

cobas e modules

cobas c modules

Cobas AmpliPrep

Cobas AmpliScreen

meters and insulin pump

Modular Analytics

Modular Analytics

Cobas TaqMan

cobas TaqScreen

systems

Elecsys

Cobas Integra

+6% *

+19% *

+4% *

+4% *

+8% *

Market segment :

Market segment :

Market segment :

Market segment :

Market segment :

Diabetes management

Immunoassays

Clinical chemistry

Virology

Blood screening

09_L_Roche_AR09_ENG_Diagnostics indd 50

29 01 2010 01:58:42

51

An industry-leading portfolio of products for clinical testing, blood screening and life science research

CoaguChek xs

293

Ventana IHC reagents

MagNA Pure LC2.0

Sysmex XT-4000i

Genome Sequencer FLX

281

255

141

139

Immunohistochemistry

MagNa Pure Systems

Sysmex analysers

454 Genome

reagents

Light Cycler Systems

+20% *

+28% *

+35% *

+6% *

+0% *

Market segment :

Market segment :

Market segment :

Market segment :

Market segment :

Coagulation monitoring

Advanced tissue staining

Gene expression research

Hematology

DNA sequencing

CoaguChek meters

Sequencers

Images are not to scale. * Year-on-year sales growth in local currencies.

09_L_Roche_AR09_ENG_Diagnostics indd 51

29 01 2010 01:58:43

52

Roche Business Report 2009

Diagnostics

Business area highlights Immunoassay sales were again a major growth driver, increas­ ing at roughly three times the market growth rate. The new cobas 8000 modular system will make Roche Professional Diagnostics an even stronger competitor in both immunoassay testing and clinical chemistry.

Professional Diagnostics — above-market growth and major new products Roche Professional Diagnostics is a leading supplier of instruments, tests, software and services for laboratories and of decentralised testing products to support clinical decision making at the point of care.

In 2009 the business area had a 15% share of a global market estimated at 28 billion US dollars.

Professional Diagnostics’ full-year sales grew nearly twice as fast as the market, rising 9% to 4,553 million Swiss francs. Immunoassay and clinical chemistry systems for laboratories, the two largest segments by sales, remained the primary growth drivers.

Regionally, sales outpaced market growth everywhere except North America, where the industry as a whole experienced flat or negative sales growth in most segments as a result of the economic downturn.

The immunoassay business gained further market share on sales growth of 19%; this was roughly three times the market growth rate. Clinical chemistry sales grew ahead of the market, advancing 4%. The placement rate for cobas modular analysers, particularly the cobas 6000 series for mid-size laboratories, remained high, fuelling sales in both these segments.

Professional Diagnostics’ immunoassay business has consistently grown at double-digit rates for the last nine years thanks to a large installed base and steadily expanding test menu. New tests introduced in 2009, like the Elecsys IL-6 (interleukin-6) immuno­ assay (an aid in the management of critically ill patients) and the high sensitivity Elecsys Troponin T assay (diagnosis of heart attack and cardiac risk stratification), were important growth drivers. In 2009 Professional Diagnostics launched six immunoassays and five new or second-generation clinical chemistry tests for a variety of therapy areas, including cardi­ ology, women’s health and critical care. In 2010 the business area will expand its test menu further, particularly in the US, where it expects to launch eight immunoassays.

09_L_Roche_AR09_ENG_Diagnostics indd 52

Coagulation monitoring sales increased 20%, reinforcing Roche’s leadership in this segment.

Sales of the top-selling CoaguChek XS monitor for patient use were up strongly again, helped by continued robust demand in Europe and expanded Medicare reimbursement for home coagulation testing in the US. Studies indicate that self-testing helps patients on anticoagulants to keep their medication within the therapeutic range and can reduce complications.

In August Professional Diagnostics began rolling out the cobas 8000 modular analyser series for highthroughput laboratories in Europe and other markets that recognise CE Mark certification. The response to this new flagship cobas platform has been overwhelmingly positive, with more than 20 orders shipped by the end of 2009. Two clinical chemistry modules (c 701 and c 502) were launched in 2009.

By the end of 2010 four cobas 8000 clinical chemistry and immunoassay modules will be available worldwide in 38 customisable configurations. The new platform is based on the same proven technologies as the smaller cobas 6000 and cobas 4000 systems, with expanded sample handling and workflow capabilities and enhanced quality management features to meet the needs of laboratories performing up to 15 million tests per year.

In September Roche concluded an exclusive license agreement with St. Vincent’s Hospital, Sydney (Australia) for worldwide patent rights relating to the use of growth differentiation factor 15 (GDF-15) for the diagnosis of cardiac dysfunction. Elevated circulating levels of GDF-15 can help identify highrisk individuals with a variety of cardiovascular conditions, from stable coronary artery disease to heart failure. Together with an agreement signed with Hannover Medical School (Hannover, Germany) in January 2009, also relating to GDF-15, and Roche’s own patents in this field, this latest agreement will further strengthen Roche’s leading position in the diagnosis of cardiovascular diseases.

29 01 2010 01:58:43

53

The new Accu-Chek portfolio delivered solid sales growth in a difficult market

Diabetes Care — market leadership strengthened Roche Diabetes Care develops and commercialises blood glucose (BG) monitoring and insulin delivery systems that enable people with diabetes to manage their condition more effectively. It is the industry leader with a 31% share of the global BG monitoring market, worth nearly 7 billion Swiss francs in global sales. Self-management is a cornerstone of diabetes care because so many daily activities affect blood glucose levels. Frequent BG testing can lower the risk of serious long-term diabetic complications like stroke, amputation and blindness, while helping people with diabetes to maintain and improve their quality of life.

In 2009 Diabetes Care’s sales increased 6% to 2,969 million Swiss francs. This was significantly ahead of global market growth, which was flat due to the economic downturn. All regions except Japan delivered sales growth, with strong sales contributions from emerging markets. The Accu-Chek Aviva and Accu-Chek Performa BG monitoring systems remained the primary growth drivers. AccuChek Aviva, Roche’s top-selling BG monitoring system, continued to post strong double-digit sales growth.

Introduced in February 2009, the Accu-Chek Mobile, the first and only strip-free BG monitoring system, experienced excellent uptake in its launch markets and contributed to market share gains in the highvalue customer segment. At the end of 2009 it was available in nine European countries. Accu-Chek Mobile’s enhanced ease of use is appreciated especially by people with insulin-dependent diabetes who need to test their BG frequently. The launch of the sleek Accu-Chek Aviva Nano and Accu-Chek Performa Nano, designed especially for younger users, has also been a significant success; at the end of 2009 these new single-strip meters were available in over 20 markets.

Sales of insulin delivery systems showed double-digit growth for the year, helped by excellent uptake of the new, interactive insulin pump system Accu-Chek

09_L_Roche_AR09_ENG_Diagnostics indd 53

Combo, which was launched in nine markets during 2009, and by continued strong demand for AccuChek infusion sets.

In September Diabetes Care announced interim data from its Accu-Chek 360° View Outcome Study.

The data indicate that people with type 2 diabetes who are not receiving insulin can improve their glycemic control by testing and analysing their BG levels in a structured way and translating the results into appropriate action. The 12-month study underscores Roche’s commitment to enhancing the medical value of diabetes self-management. The final results will be announced in June 2010.

Molecular Diagnostics — new products lay the foundation for future growth Roche Molecular Diagnostics develops and commercialises advanced diagnostic and blood screening platforms and tests based on Roche’s proprietary real-time polymerase chain reaction (PCR) technology.

The fast-growing (+12%), highly competitive molecular diagnostics market is valued at 4 billion Swiss francs; Roche is the leader with a 32% market share.

Excellent uptake of the latest Accu-Chek products helped drive above-market sales growth for Diabetes Care in 2009.

Molecular Diagnostics won several important new blood screening accounts in 2009, contributing to significant competitive gains in some markets.

Molecular Diagnostics’ full-year sales advanced 5% to 1,183 million Swiss francs. Growth was led by solid gains in the EMEA region, especially in the core blood screening business. The fully automated cobas TaqScreen MPX Test, available in Europe since 2006 and launched last year in the US, contributed strongly to 8% growth in this segment, with significant competitive gains in several markets. This multiplex blood screening test detects five viral targets. In virology, the largest segment by sales, Molecular Diagnostics retained its leading market share with 4% sales growth. Strong virology sales and new blood screening accounts in Portugal, Spain, Thailand and the UK resulted in above-market, double-digit sales growth in the Asia—Pacific and EMEA regions.

Since its EU launch in April, Roche’s LightCycler MRSA Advanced Test has experienced positive uptake in countries where reporting methicillin-resistant Staphylococcus aureus (MRSA) infections is customary

29 01 2010 01:58:43

54

Diagnostics

Roche Business Report 2009

Excellence in science: Expertise in molecular biology

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Over the years both Roche divisions have amassed tremendous expertise in molecular biology.

Today they are applying this knowledge and a wide range of technologies in the pursuit of new tests and more targeted treatments in five major focus areas: oncology, inflammation, neuroscience, metabolism and virology. At the same time they are working together to gain further insights into molecular mechanisms that cause and drive disease. Every cancer drug development programme at Roche, for example, involves biomarker research aimed at validating treatment targets and identifying the patients most likely to respond to a new drug. Almost 30 years of cancer research at the molecular level have helped us develop new strategies that move us closer to the ultimate goal of one day curing cancer.

29 01 2010 01:58:43

55

Roche developed a test for the new pandemic flu virus within weeks after the virus was first reported or required. Studies indicate that the test’s speed — it reliably identifies MRSA carriers in less than two hours, versus one to three days using conventional methods — can help significantly reduce the spread of this potentially deadly microbe in hospitals. Screening for MRSA is one of the fastest-growing segments in the North American molecular diagnostics market and is expanding in EMEA and some Asia—Pacific markets. Roche expects to launch the LightCycler MRSA Advanced Test in the US in 2010.

In December Molecular Diagnostics launched its new fully automated cobas 4800 System in Europe and other markets that accept CE Mark certification.

The system is designed to meet the current and long-term molecular diagnostic testing needs of mid- to high-throughput laboratories, and Roche expects it to become a significant growth driver.

The test menu currently comprises dual target tests for Chlamydia trachomatis (CT) and Neisseria gonorrhoeae (NG) (the bacteria that cause chlamydia infections and gonorrhea) and a screening and genotyping test for human papillomavirus (HPV), the most common sexually transmitted infection, which is responsible for nearly all cervical cancers worldwide. In Australia and New Zealand, where the cobas 4800 System has been available with the CT/NG tests since September, the market response has been very strong. Next-generation oncology and microbiology assays for the system are in development.

In August Molecular Diagnostics completed enrolment of patients into its pivotal ATHENA clinical trial.

The trial, involving approximately 47,000 women, is designed to assess the value of screening women for cervical cancer using Roche’s cobas 4800 HPV assay together with a standard Pap smear. Initial trial data will be available in February, and Roche expects to file the full ATHENA data set with the Food and Drug Administration (FDA) in the second quarter of 2010. If approved, the assay, which provides an aggregate result for 12 high-risk HPV genotypes and individual results for HPV genotypes 16 and 18 (the genotypes that put women at the greatest risk

09_L_Roche_AR09_ENG_Diagnostics indd 55

of developing cervical cancer), could help increase the sensitivity of screening for HPV infections that can lead to cervical cancer. When HPV DNA testing is performed in conjunction with a Pap smear, more women will be identified with precancerous cervical disease during the first round of cancer screening, enabling appropriate medical intervention. Additionally, because of the greater sensitivity of HPV DNA testing, women who are HPV DNA negative may potentially be deferred to longer screening intervals.

Moreover, identification of HPV genotypes 16 and 18 provides actionable information guiding the clinician to investigate further those women at the highest risk for cancer.

Tests for hospitalacquired infections like MRSA and for human papillomavirus infection are two of the fastest-growing segments in molecular diagnostics. In 2009 Roche launched competitive new products in both these segments in Europe.

Applied Science — broad-based growth Roche Applied Science supplies scientists in acade­ mia and the biotech and pharmaceutical industries with instruments and highly specific reagents and test kits for a broad range of research applications. The global life science research market, valued at 8 billion US dollars, grew approximately 8% in 2009.

Demand for instruments and reagents for pandemic flu testing were a major sales driver for Roche Applied Science in 2009.

Applied Science’s sales for 2009 totalled 870 million Swiss francs, an increase of 15% over the previous year. The MagNA Pure and LightCycler product lines (nucleic acid sample preparation (NAP) and quanti­ tative polymerase chain reaction (qPCR) analysis) were again the biggest contributors to growth, with sales up 35% helped by strong demand for instruments and reagents for pandemic influenza testing and surveillance. In May Applied Science developed and launched the RealTime ready Influenza A/H1N1 Detection Set for research use, just weeks after first reports of the new pandemic flu virus in Mexico.

The set enables rapid, accurate detection of the virus’s RNA (genetic material). The FDA granted Emergency Use Authorization of the kit in November, making it available for clinical use in specially certified laboratories in the US. Other significant new products include the fully automated MagNA Pure 96 System for high-throughput NAP. Uptake by academic and industrial customers has been robust since the system’s global launch in September.

29 01 2010 01:58:43

156

Roche Business Report 2009

Diagnostics

Significant product launches by business area Total

(2010)

(25)*

2009

23

2008

18

2007

11 0

4

8

12

Cell analysis systems showed very strong sales growth in 2009, driven mainly by the xCELLigence product tl | y line but also partly attributable to the acquisition of innovatis AG in March. Applied Science’s latest Real Time Cell Analyser — the xCELLigence RTCA DP (dual plate) instrument — has been a growth driver since its worldwide launch in April. Its value as a cancer research tool was enhanced further by the November launch of the xCELLigence System D CIM-Plate 16, a culture plate enabling scientists l to study cell migration and invasion dynamically, 1 0e in real time, over the entire time span of an experiment.

This may help researchers identify molecular targets for new drugs that inhibit cancer cells’ ability to invade nearby tissues and migrate (metastasise) to distant parts of the body.

Microarray sales rose 44%, nearly four times the global array market growth rate. Growth was fuelled by continued strong performance of NimbleGen’s innovative Sequence Capture technologies, which ideally complement the business area’s next-generation sequencing systems, and by the introduction of the high-resolution, high-throughput MS 200 Microarray Scanner.

Sales of DNA sequencing reagents showed a robust 26% increase, but overall sales of DNA sequencing systems were flat due to the economic downturn and the resulting decline in research funding, particularly in the US. The US administration’s 2009 stimulus package for biomedical research is expected to alle­ viate the situation in 2010. The launch of a medium-

09_L_Roche_AR09_ENG_Diagnostics indd 56

16

20

24

throughput, benchtop version of the Genome Sequencer (GS) FLX System in 2010 is expected to spur further growth. The GS Junior System will close the market gap between low-throughput traditional 0 sequencing and the ultra-high-throughput of instru6 (7) ments like the GS FLX System, putting next-generation ( ) sequencing technology within the reach of thousands of additional researchers worldwide.

Tissue Diagnostics — rapid penetration of new markets Roche Tissue Diagnostics (Ventana Medical Systems in North America) is the world’s leading supplier of tissue-based cancer diagnostics. Its instruments and reagent systems are used in histology, cytology and drug discovery laboratories worldwide. In 2009 the unit had a 20% share of the tissue diagnostics market, which is valued at over 2 billion Swiss francs.

Tissue Diagnostics recorded sales of 480 million Swiss francs in 2009, a 29% increase over the eleven months’ sales consolidated a year earlier following the Ventana acquisition in February 2008. On a compa­ rable basis, sales rose 21%, significantly outpacing the market, which is estimated to be growing at 12%.

The business area’s core advanced tissue staining portfolio remained the primary growth driver, with immunohistochemistry (IHC) reagents for cancer diagnosis and advanced staining instruments fuelling robust 27% growth in this segment. Placements of the fully automated BenchMark Ultra, successfully launched in North America and Europe in 2008,

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57

Roche has a biomarker programme for every drug that it is developing

accelerated steadily during the year. This is the first and only system to perform simultaneous IHC and in situ hybridisation (ISH) testing on a single continuous and random access platform, enabling samples to be added and removed at any time without interrupting workflow. Full-year sales of the Symphony slide staining instrument and hematoxylin and eosin reagents for the high-volume primary staining market grew 39%.

Tissue Diagnostics won market share in all regions, with especially strong gains in Asia—Pacific and Latin America. It successfully leveraged the existing Roche infrastructure to expedite the hiring of sales personnel and the introduction of new products in EMEA, Asia—Pacific and Latin America, contributing to above-market growth in these regions. By the close of 2009 the business area had established its own sales organisations in six of the E7 markets, and most of its major instruments and IHC reagents were already registered and available in Brazil, India, China and Mexico. Roche is addressing the increasing demand for fully automated products in emerging markets, which is contributing to strong market share gains there.

In 2009 Tissue Diagnostics launched 17 new IHC reagents to aid in diagnosing various cancers, including leukemia, lymphoma and cancers of the colon and prostate. Working closely with Roche’s Pharmaceuticals Division, it continued to develop exploratory tests that may one day lead to companion diagnostics for Roche therapies. As a direct result of this collaboration, Tissue Diagnostics expects two HER2 assays to receive CE-IVD Marking in the first half of 2010 for use as aids in assessing both breast and gastric cancer patients for whom Herceptin treatment is being considered.

09_L_Roche_AR09_ENG_Diagnostics indd 57

Research and development Roche’s Diagnostics Division continues to invest heavily in innovation. In 2009 research and development (R & D) costs totalled 978 million Swiss francs, an increase of 5% over 2008. R & D costs as a percentage of sales remained stable at 9.7%. Projects accounting for a significant share of R & D spending in 2009, and which will remain funding priorities in 2010, include the ATHENA trial of Roche Molecular Diagnostics’ cobas 4800 HPV screening and geno­ typing test in the US, development of the cobas 8000 modular analyser series and development of a next-generation molecular diagnostic platform for mid- to high-throughput IVD testing and blood screening. The division also invested in developing new products in its tissue diagnostics business.

Expansion of the immunoassay menu will be a further major focus of R & D investment in 2010.

The Diagnotics Division is focusing much of its R & D spending on high-growth areas like molecular diagnostics, immuno­ assays and tissue diagnostics.

Roche is working on potential companion diagnostic tests in all of the Group’s key disease areas of interest, particularly oncology.

The division’s R & D productivity has improved in recent years. Since 2007 the number of major product launches has increased significantly, and the division expects 2010 to be another excellent year in terms of strengthening its product portfolio (see chart on p. 56 and the tables of Major product launches on pp. 60–61).

The discovery and validation of biomarkers is essential to realising the promise of personalised healthcare.

In pharmaceutical R & D they have many uses, from identifying new therapeutic targets and screening out unpromising drug candidates to selecting appropriate patient populations for clinical trials. In the clinic, biomarker tests increasingly provide invaluable information for early diagnosis and about disease pre­ disposition, prognosis and the likelihood of treatment response (response prediction), contributing to earlier, more targeted therapeutic interventions. Roche’s IVD portfolio already includes companion diagnostics contributing to more effective treatment in a number of conditions, including HER2-positive breast cancer, precancerous cervical changes caused by human papillomavirus infection, hepatitis B and C infection and cytomegalovirus disease.

29 01 2010 01:58:44

58

Roche Business Report 2009

Diagnostics

Every drug being developed at Roche has a biomarker programme associated with it, and Diagnostics ex­ pertise and advice are made available for each of these programmes. At the end of 2009 Roche had five biomarker tests in late stage and six in early stage clinical validation for use as potential companion diagnostic tests and over 30 exploratory stage diagnostic programmes, in the areas of oncology, metabolism, virology, autoimmune and inflammatory disease and central nervous system disorders. There has to be a strong case for a biomarker’s ability to detect disease or predict a clinical outcome before it moves into late-stage validation, where the aim is to establish clinical validity conclusively through further testing on samples collected in ongoing drug trials.

more likely than seronegative patients to achieve a significant improvement in their disease following MabThera/Rituxan treatment. This could signal a major advance over the current trial-and-error approach to treating RA, in which patients cycle through various treatment options until an optimum response is achieved. Roche already markets assays for rheumatoid factor and anti-CCP.

Given the Pharmaceuticals Division’s strong oncology portfolio, identifying and validating biomarkers to support the use of Roche’s marketed and developmental cancer medicines is naturally a major focus of research. Encouraging projects include a PCR-based test for BRAF V600E, a cancer-causing gene mutation associated with poor prognosis in several cancers, including malignant melanoma. Developed by Roche Molecular Diagnostics, the test was proven essential for selecting suitable patients in a phase I trial with the BRAF kinase inhibitor RG7204 in metastatic melanoma. RG7204, which selectively targets and induces cell death in tumours harbouring the BRAF V600E mutation, markedly prolonged progressionfree survival in patients in the trial who tested positive for the mutation. The test has also been used successfully in clinical trials to identify mutationpositive colorectal cancers. If RG7204 is approved, Roche expects to launch the BRAF V600E test as the companion diagnostic.

Two other highly promising biomarkers that have already reached late-stage clinical validation are rheumatoid factor and anti-cyclic citrullinated peptide (anti-CCP) — antibodies that are found in the blood of many rheumatoid arthritis (RA) patients. An analysis of pooled data from two clinical trials with MabThera/ Rituxan in RA show that patients who are seropositive for either of these antibodies are two to three times

09_L_Roche_AR09_ENG_Diagnostics indd 58

29 01 2010 01:58:44

59

Glossary Biomarker | A characteristic that can be measured and evaluated as an indicator of a normal biological process, a disease process or a response to a therapeutic intervention. Elevated levels of the protein HER2 in cancer, for example, are a biomarker for a high probability of response to Herceptin.

Cell analysis | Methods of measuring the properties of cells, including their size and shape, cellular parameters such as the presence of specific proteins, and cellular processes such as proliferation and growth. Cell analysis technologies play an important role in drug development and production.

CE Mark certification | Certification that an in vitro diagnostic (IVD) product complies with all safety, health and environmental requirements for use in the European Union. Certified diagnostics are referred to as CE IVDs. Clinical chemistry | A branch of diagnostics comprising tests that detect and measure changes in the chemical composition of body fluids and tissues to diagnose or predict the course of a disease.

Immunoassay | A laboratory test that detects or measures a target substance in a sample using an immunochemical reaction, in which an antibody binds to a specific antigen. The target can be a drug, a protein or a virus, for example.

Immunohistochemistry (IHC) | A method of staining biological tissue samples to determine the presence, level and location of specific proteins in cells; used in the diagnosis of cancer and other diseases.

In situ hybridisation (ISH) | A method of staining biological tissue samples to identify the presence and copy number of specific genes or genetic mutations in cells; used in the diagnosis of cancer and other diseases.

Polymerase chain reaction (PCR) | A laboratory method widely used in research and industry to make millions of copies of a DNA sequence of interest very quickly. Real-time PCR simultaneously amplifies (copies) and quantifies the targeted DNA molecule.

Virology | In molecular diagnostics, testing to detect certain serious and prevalent viral infections (e.g. HIV and hepatitis C) or to monitor their treatment.

DNA sequencing | Methods of determining the order of nucleotides (molecular building blocks) in genetic material. Knowing an individual’s DNA sequence can provide insights into genetic changes which contribute to human disease or influence treatment response. High-throughput technologies read thousands of sequences at once.

HER2 (human epidermal growth factor receptor 2) | A protein involved in normal cell growth and found at increased levels in some cancers, including some breast and gastric cancers.

Cancer cells may be tested in the laboratory for HER2 levels to help choose the most appropriate treatment.

09_L_Roche_AR09_ENG_Diagnostics indd 59

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60

Roche Business Report 2009

Diagnostics

Product launches in the Diagnostics Division

Major product launches in 2009 Business area Professional Diagnostics

Diabetes Care

Molecular Diagnostics

Applied Science

Tissue Diagnostics

Product Elecsys immunoassays for PlGF (placenta growth factor) and sFlt1 (soluble fms-like tyrosine kinase 1) for the diagnosis of preeclampsia Elecsys IL-6 (interleukin-6) immunoassay to aid the management of critically ill patients Elecsys Troponin I Assay: test for cardiac-specific troponin I levels to predict mortality risk in patients with acute coronary syndrome High-sensitivity Elecsys Troponin T immunoassay for the diagnosis of heart attack and cardiac risk stratification Sysmex XT-4000i: mid- to high-throughput hematology analyser with test capabilities for whole blood and other body fluids cobas c 701 clinical chemistry module for the cobas 8000 analyser series for high-throughput laboratories. Throughput: up to 2,000 tests/hour cobas p 501 and cobas p 701 automated storage and retrieval modules for bar-coded primary and secondary sample tubes cobas c 502 clinical chemistry module for the cobas 8000 analyser series.

Throughput: up to 600 tests/hour Accu-Chek Mobile: integrated lancing and blood glucose monitoring device employing a unique ‘no strip’ technology that replaces test strips with a ­continuous tape of 50 tests

Market and quarter EU Q1 EU Q1 EU Q1 EU Q1 US Q4 Contractual territory in EMEA Q2 EU Q3 EU Q3 EU Q4 EU Q1

Accu-Chek Aviva Nano and Accu-Chek Performa Nano: sleeker versions of the Accu-Chek Aviva and Accu-Chek Performa meters, offering an enhanced feature set

EU Q1

Accu-Chek Combo: interactive insulin delivery system combining an insulin pump and a blood glucose meter with broad data management capabilities; the meter also functions as a pump remote control

EU Q1

Accu-Chek Active: new version of an existing meter, featuring an extended memory and a number of fail-safe capabilities

EU Q1

LightCycler MRSA Advanced Test: automated real-time PCR-based test for methicillin-resistant Staphylococcus aureus. The test can identify MRSA carriers in under two hours

EU Q1

cobas p 630 instrument and AmpliLink 3.3 software: the only pre-analytical instrument to unite primary tube handling with fully automated sample preparation, amplification and detection for molecular diagnostics

EU Q4

cobas 4800 platform for automated DNA extraction and real-time PCR ­amplification and detection; with tests for human papillomavirus, Chlamydia trachomatis and Neisseria gonorrhoeae

EU Q4

NimbleGen MS 200: fully automated high-resolution microarray scanner for use with all NimbleGen DNA microarrays

Worldwide Q2

xCELLigence RTCA DP (dual plate) system: highly flexible medium-throughput system for real-time non-invasive cell analysis

Worldwide Q2

LightCycler 1536 system for high-throughput quantitative PCR analysis MagNA Pure 96 high-throughput system for preparing nucleic acid samples for PCR analysis INFORM EGFR DNA Probe: detects extra copies of the epidermal growth ­factor receptor (EGFR) gene, an abnormality associated with non-small cell lung cancer

Worldwide Q2 Worldwide Q4

BenchMark XT advanced staining instrument BenchMark Ultra advanced staining system with continuous and random processing and STAT capabilities Intended use of CONFIRM anti-HER2/neu Primary Antibody and INFORM HER2 DNA Probe expanded to include analytical claims regarding perfor­ mance with gastric as well as breast tissue samples

EMEA, APAC Q1

LATAM, APAC Q1 Additional European markets, LATAM, Q1 Japan Q4 EMEA, APAC Q2

EU = European Union; EMEA = Europe, Middle East and Africa; APAC = Asia—Pacific; LATAM = Latin America; US = United States.

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61

Major product launches planned for 2010 5 Business area Professional Diagnostics

Diabetes Care

Molecular Diagnostics

Applied Science

Product cobas e 602 immunoassay module for the cobas 8000 modular analyser series for high-volume laboratories. Throughput: up to 170 tests/hour Eight Elecsys immunoassays in the US; six in the EU

Q1-Q4

cobas c 701 and cobas c 502 clinical chemistry modules for the cobas 8000 modular analyser series. Throughput: up to 2,000 and 600 tests/hour, respectively

US Q2

cobas p 501 and cobas p 701 automated storage and retrieval modules for bar-coded primary and secondary sample tubes

US Q2

cobas c 702 advanced clinical chemistry module for the cobas 8000 modular analyser series. Features automated reagent loading, enabling consolidation of a broader test menu. Throughput: up to 170 tests/hour

EU Q4

cobas b 123 benchtop multiparameter analyser (blood gas, electrolytes, CO-oximetry and metabolites) for use at the point of care

EU Q4

HIV combi 27 min: improved combination assay for HIV 1 antigen (p24) and HIV antibodies, enabling more reliable early detection of infection with the human immunodeficiency virus

EU Q4

Accu-Chek Mobile: integrated lancing and blood glucose monitoring device employing a unique ‘no strip’ technology that replaces test strips with a ­continuous tape of 50 tests

Additional EU markets Q1-Q3 APAC Q1

Accu-Chek Combo: interactive insulin delivery system combining an insulin pump and a blood glucose meter with broad data management capabilities; the meter also functions as a pump remote control

Additional EU markets Q1 APAC Q1, US Q3-Q4

Accu-Chek Aviva Nano: sleeker version of the Accu-Chek Performa meter, offering an enhanced feature set

US Q3-Q4

LightCycler MRSA Advanced Test: automated real-time PCR-based test for methicillin-resistant Staphylococcus aureus

US Q2

Cobas AmpliPrep/Cobas TaqMan CMV (CE IVD): a viral load monitoring test that will enable physicians to improve the management of cytomegalovirus (CMV) disease in solid organ transplant patients

EU Q3

cobas TaqScreen DPX Test: multi-dye blood screening test designed to ­simultaneously provide a quantitative result for parvovirus B19 and a qualitative result for hepatitis A virus

EU Q3

Cobas AmpliPrep/Cobas TaqMan HIV-1 v2: second-generation test with a unique dual-target design enabling detection of two separate regions of the HIV-1 genome

US Q4

Cobas TaqMan 48 HIV v2 (CE IVD) High Pure virology test: offers a manual sample preparation option for customers with a low-volume workload

EU Q4

GS Junior System: economical benchtop next-generation DNA sequencing system for smaller laboratories

Worldwide Q1

NimbleGen CGX-6 multiplex arrays: microarrays for high-resolution analysis of chromosomal abnormalities; capable of analysing six samples simultaneously

Worldwide Q1

xCELLigence RTCA HT instrument, for automated high-throughput cell analyses and screening

Worldwide Q1

SeqCap EZ Exome v.2: in-solution enrichment capture technology for targeted next-generation sequencing

Worldwide Q2

Next-generation ultra-high density NimbleGen microarrays Tissue Diagnostics

Market and quarter EU Q1 US Q3

Worldwide Q3–Q4

Dual colour/dual hapten in situ hybridisation (ISH) kit enabling target gene detection and control on a single slide. For use with all molecular markers; specifically to support HER2 testing

EU Q1

Ventana anti-HER2 neu (4B5) primary antibody and Ventana HER2 DNA probe: CE IVDs for assessing the likelihood of response to Herceptin treatment in both breast and gastric cancer patients

EU Q1–Q2

BenchMark GX: economical, low-volume advanced tissue staining platform that automates all slide processing steps from baking to staining CE-IVD molecular probes targeting the enzyme TOP2A and the cell surface receptor IGF1R, for use as an aid in diagnosing and managing breast and lung cancer

EU, APAC Q2

Discovery Ultra: platform for immunohistochemistry and in situ hybridisation research, offering significant improvements in ease of use, workflow and ­flexibility

US, EU Q2 APAC, Japan, LATAM Q4

EU Q2-Q4

5 Planned launches may be delayed or not occur as a result of adverse regulatory decisions or other factors.

EU = European Union; EMEA = Europe, Middle East and Africa; APAC = Asia—Pacific; LATAM = Latin America; US = United States.

09_L_Roche_AR09_ENG_Diagnostics indd 61

29 01 2010 01:58:44

They’re reading genes

to help save lives one day Precision and speed count in modern molecular diagnostics. We’re working to improve both. Our genome sequencers can ‘read’ the building blocks of highly variable genes in a matter of days instead of weeks, which is how long it takes to achieve the same precision with conventional sequencing methods. This may one day help to extend and improve the lives of transplant patients. Currently we are investigating the use of our sequencers for HLA (human leukocyte antigen) genotyping of blood stem cells. Stem cell transplantation is performed to treat a number of diseases, including leukemia.

Donors’ and recipients’ cells need to be as HLA-compatible as possible for treatment to be successful.

Studies have shown that the Genome Sequencer FLX System * is a powerful research tool for high-resolution HLA genotyping, which is critical for people needing transplants. The closer the match between the donor’s and recipient’s HLA genes, the smaller the risk of transplant rejection.

* For life science research only. Not for use in diagnostic procedures.

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28 01 2010 23:53:18

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28 01 2010 23:53:22

Corporate Governance | Roche’s commitment to all stakeholders is reflected in its operating businesses’ focus on value creation, in a management culture that conforms to modern standards of corporate governance and in the Group’s policy of communicating transparently.

Remuneration Report | Roche’s success depends on the abilities and dedication of its people. Recognition of this forms the basis of our remuneration policy and system.

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29 01 2010 00:50:11

65

Corporate Governance

Roche complies with all relevant corporate governance requirements, in particular with all applicable laws, the Swiss Stock Exchange (SIX Swiss Exchange) directives (including the commentaries thereto) and the Swiss Code of Best Practice for Corporate Gover­ nance promulgated by the Swiss business federation ‘economiesuisse’. The company’s internal governance framework, particularly its Articles of Incorporation and Bylaws, embodies all the principles needed to ensure that the company’s businesses are managed and supervised in a manner consistent with good corporate governance, including the necessary checks and balances. 1 Our printed Annual Report contains selected links to the Roche website (www.roche.com). Readers are thus provided not only with a ‘snapshot’ of our com­ pany at the reporting date but are also directed to sources which they can consult at any time for up-todate information about corporate governance at Roche. Whereas each annual report covers a single financial year ending 31 December, our website contains information of a more permanent nature as well as the latest Roche news. Amendments to our company’s Articles of Incorporation and Bylaws and changes in the curricula vitae of the members of the Board of Directors and the Corporate Executive Committee are published in timely fashion on our website, where they can be accessed by anyone looking for this information.

Board of Directors At the 91 th Annual General Meeting (AGM) of Roche Holding Ltd, on 10 March 2009, shareholders re-elected John I. Bell, André Hoffmann and Franz B. Humer as members of the Board of Directors for a term of three years as provided by the Articles of Incorporation. At its organising meeting immediately following the 2009 AGM, the Board of Directors has approved its committees’ structure and its committee memberships as shown on page 67.

11_L_Roche_AR09_ENG_Corporate Governance indd 65

At the AGM on 2 March 2010, the Board of Directors will nominate DeAnne Julius and Beatrice Weder di Mauro for re-election to the Board and Arthur D. Levinson and William M. Burns for election as new Members of the Board for a term of three years as provided by the Articles of Incorporation. Peter Brabeck-Letmathe and Horst Teltschik have decided to retire as members of the Board of Directors after many years of distinguished service. The Board of Directors thanks for their dedication and their many contributions to Roche.

Corporate Executive Committee William M. Burns as CEO Division Roche Pharma­ ceuticals, Jürgen Schwiezer as CEO Division Roche Diagnostics and Jonathan Knowles as Head Group Research retired on 31 December 2009 and therefore stepped down as members of the Corporate Executive Committee. The Board of Directors thanks the leaving members of the Corporate Executive Committee for their dedication and their many contributions to Roche.

The Board of Directors of Roche Holding Ltd will nominate William M. Burns for election to the Board at the AGM on 2 March 2010.

As part of the Genentech transaction, Pascal Soriot was appointed as CEO of Genentech, Inc. and as a new member of the Corporate Executive Committee in April 2009. Pascal Soriot relinquished his role as CEO Genentech, Inc. as of 31 December 2009 and was appointed as COO Division Roche Pharmaceu­ ticals starting on 1 January 2010.

1 http://www.roche.com/about_roche/corporate_governance.htm

29 01 2010 00:50:11

66

Roche Business Report 2009

Corporate Governance

Board of Directors per 31 December 2009 (from left): Dr Franz B. Humer, Prof. Bruno Gehrig, AndrĂŠ Hoffmann, Prof. Pius Baschera, Prof. Sir John Irving Bell, Peter Brabeck-Letmathe, Lodewijk J. R. de Vink, Dr Andreas Oeri, Dr DeAnne Julius, Walter Frey, Prof. Beatrice Weder di Mauro, Prof. Horst Teltschik, Dr Wolfgang Ruttenstorfer

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29 01 2010 00:50:15

67

Board of Directors Name (year of birth)

Board of Directors

Term ends

First elected

1995

Dr Franz B. Humer (1946)

D *, E

Chairman

2012

Prof. Bruno Gehrig (1946)

C *, D, E

Vice-Chairman

2011

2004

AndrĂŠ Hoffmann (1958)

C, D, E

Vice-Chairman

2012

1996

Prof. Pius Baschera (1950)

A, E

2011

2007

Prof. Sir John Irving Bell (1952)

C, E

2012

2001

Peter Brabeck-Letmathe (1944)

E

2010

2000

Lodewijk J. R. de Vink (1945)

C, E

2011

2004

Walter Frey (1943)

A, B, E

2011

2001

Dr DeAnne Julius (1949)

B *, E

2010

2002

Dr Andreas Oeri (1949)

A *, E

2011

1996

Dr Wolfgang Ruttenstorfer (1950)

B, E

2011

2007

Prof. Horst Teltschik (1940)

A, B, E

2010

2002

Prof. Beatrice Weder di Mauro (1965)

A, B, E

2010

2006

New proposed members of the Board of Directors, nominated for election at the Annual General Meeting William M. Burns (1947) on 2 March 2010 Dr Arthur D. Levinson (1950)

Secretary to the Board of Directors

Dr Gottlieb A. Keller (1954)

Honorary Chairman of the Board of Directors

Dr Fritz Gerber (1929)

A Corporate Governance and Sustainability Committee.

B Audit Committee.

C Remuneration Committee.

D Presidium/Nomination Committee.

E Non-executive director. * Committee chairperson.

11_L_Roche_AR09_ENG_Corporate Governance indd 67

1 January 2010

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68

Roche Business Report 2009

Corporate Governance

On this page Corporate Executive Committee per 31 December 2009 (from left): Dr Severin Schwan, William M. Burns, Dr JĂźrgen Schwiezer, Dr Erich Hunziker, Silvia Ayyoubi, Prof. Jonathan Knowles, Dr Gottlieb A. Keller, Pascal Soriot, Burkhard G. Piper, Osamu Nagayama, Per-Olof Attinger, Richard Scheller, RenĂŠ Kissling Right page New members as of 1 January 2010 (from left): Daniel O'Day, Jean-Jacques Garaud, Dan Zabrowski

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69

Corporate Executive Committee Name (year of birth)

Corporate Executive Committee

Position

Dr Severin Schwan (1967)

CEO of the Roche Group

Dr Erich Hunziker (1953)

Chief Financial Officer and Deputy Head of the Corporate Executive Committee

William M. Burns (1947)*

CEO Division Roche Pharmaceuticals

Dr Jürgen Schwiezer (1944)*

CEO Division Roche Diagnostics

Prof. Jonathan K. C. Knowles (1947)*

Head Group Research

Dr Gottlieb A. Keller (1954)

General Counsel

Silvia Ayyoubi (1953)

Head Human Resources

Pascal Soriot (1959)

CEO Genentech, Inc.; as of 1.1.2010 COO Division Roche Pharmaceuticals

As of 1 January 2010

Daniel O’Day (1964)

Enlarged Corporate Executive Committee

Burkhard G. Piper (1961)*

COO Division Roche Diagnostics Head Business Area Roche Diabetes Care

Per-Olof Attinger (1960)

Head Communications

Osamu Nagayama (1947) Richard Scheller (1953)

President and CEO Chugai Head Genentech Research and Early Development (gRED) Head Roche Pharma

As of 1 January 2010

Jean-Jacques Garaud (1955)

Research and Early Development (pRED)

Dan Zabrowski (1959)

Secretary to the Corporate Executive Committee

René Kissling (1966)

Statutory Auditors of Roche Holding Ltd

KPMG Klynveld Peat Marwick Goerdeler SA (reporting years 2004–2008) KPMG AG (since 2009) Auditor in charge: John A. Morris (since 2004)

Chief Compliance Officer

Dr Urs Jaisli (1956)

Head of Pharma Partnering

* Member until 31 December 2009.

New members as of 1 January 2010 (from left): Daniel O'Day, Jean-Jacques Garaud, Dan Zabrowski

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70

Roche Business Report 2009

Corporate Governance

As of 1 January 2010 Daniel O’Day was appointed as COO Division Roche Diagnostics and as a new member of the Corporate Executive Committee. As of 31 December 2009, Burkhard Piper stepped down as a member of the Enlarged Corporate Execu­ tive Committee and is reporting to Daniel O’Day.

• Major shareholders are listed in the Finance Report,

In April 2009, Richard Scheller was appointed to the Enlarged Corporate Executive Committee.

He reports directly to Group CEO Severin Schwan.

As the former Head of Genentech Research, he leads Genentech’s Research and Early Development (gRED) which will operate as an independent centre within the Roche Group.

•

Jean-Jacques Garaud was appointed as Head of Roche Pharma Research and Early Development (pRED) and as a new member of the Enlarged Corporate Executive Committee.

Dan Zabrowski as Head of Pharma Partnering was appointed as a new member of the Enlarged Corporate Executive Committee.

Information relating to Corporate Governance 1 Group structure and shareholders • Roche’s operating businesses are organised into two divisions: Pharmaceuticals and Diagnostics. The Pharmaceuticals Division comprises the two business segments Roche Pharmaceuticals and Chugai, whereas Genentech as the former third segment has been integrated into Roche Pharmaceuticals. The Diagnostics Division consists of the following five business areas: Applied Science, Diabetes Care, Molecular Diagnostics, Professional Diagnostics and Tissue Diagnostics. Business activities are carried out through Group subsidiaries and associated compa­ nies. Significant subsidiaries and associated companies are listed in the Finance Report, Note 34 to the Roche Group Consolidated Financial Statements (‘Subsidiaries and associates’, pages 122 to 124.

11_L_Roche_AR09_ENG_Corporate Governance indd 70

•

Notes 28 and 33 to the Roche Group Consolidated Financial Statements (‘Equity attributable to Roche shareholders’ and ‘Related parties’, pages 106 and 120) and in Note 4 to the Financial Statements of Roche Holding Ltd (‘Significant shareholders’, page 141).

André Hoffmann, Vice-Chairman of the Board of Directors, and Andreas Oeri, Member of the Board of Directors and Chairman of the Board’s Corpo­ rate Governance and Sustainability Committee, serve in their respective capacities on the Board and its Committees as representatives of the share­ holders group with pooled voting rights and receive the remuneration set forth in the Remuneration Report on page 77 and in the Finance Report, Note 33 to the Roche Group Consolidated Financial Statements (‘Related parties’, page 120) and Note 6 to the Financial Statements of Roche Holding Ltd (‘Board and Executive remuneration’, page 142).

No other relationships exist with the shareholders with pooled voting rights.

There are no cross-shareholdings.

2 Capital structure • Information on Roche’s capital structure is provided in the Finance Report, Notes to the Financial Statements of Roche Holding Ltd (page 140 and 141). Additional details are contained in the Articles of Incorporation of Roche Holding Ltd. 2 • Changes in equity are detailed in the Finance Report, Notes to the Financial Statements of Roche Holding Ltd (page 141).

• The company has a share capital of 160,000,000 Swiss francs, divided into 160,000,000 fully paid bearer shares with a nominal value of 1 Swiss franc each. There are no restrictions on the exercise of the voting rights of these shares. Upon deposit, shares can be voted without any restrictions.

• There is no authorised or conditional capital.

• In addition, 702,562,700 non-voting equity securities (NES) have been issued in bearer form.

2 http://www.roche.com/about_roche/corporate_governance/ article_of_incorporation.htm

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71

•

•

•

•

They do not form part of the share capital and confer no voting rights. Each NES confers the same rights as one share to participate in available earnings and in any liquidation proceeds following repayment of the share capital. Roche’s NES and the rights pertaining thereto (including the provisions protecting the interests of NES holders) are described in § 4 of the Articles of Incorporation of Roche Holding Ltd. Information on debt instruments which have been issued and on outstanding bonds is provided in the Finance Report, Note 27 to the Roche Group Consolidated Financial Statements (‘Debt’, page 100).

Additional information on employee stock options is provided in the Finance Report, Note 11 to the Roche Group Consolidated Financial Statements (‘Employee stock options and other equity compensation benefits’, page 72).

Roche has issued no options apart from employee stock options, Stock-settled Stock Appreciation Rights (S-SARs) and options issued in connection with debt instruments.

Neither the options awarded to employees nor the debt instruments which have been issued have any effect on Roche’s share capital.

3 Board of Directors and Corporate Executive Committee • Information on each member of the Board of Directors (including the years in which they were elected and the years in which their terms end) and on each member of the Corporate Executive Committee is listed on pages 65 to 70. Curricula vitae and other information (including information on board memberships) are available on the Internet. 3 • The Annual General Meeting elects the members of the Board of Directors in staggered elections in which each nominee is voted on separately (see §18 of the Articles of Incorporation of Roche Holding Ltd 4 and the Minutes of the 91th Annual General Meeting of Roche Holding Ltd, held 10 March 2009 5 ).

11_L_Roche_AR09_ENG_Corporate Governance indd 71

• With the exception of Franz B. Humer, none of the

•

•

• •

members of the Board of Directors has been a member of Roche’s Corporate Executive Committee or served in an executive capacity at any Group subsidiary during the three financial years preceding the current reporting period.

The internal organisation of the Board of Directors and the division of authority and responsibilities between the Board and management, the remits of the Board committees and the information and control mechanisms available to the Board in its dealings with corporate management are governed by the Bylaws. 6 The Board of Directors of Roche Holding Ltd is organised so as to ensure that the Group’s businesses are conducted responsibly and with a focus on long-term value creation. To this end, the Roche Board has delegated certain responsibilities to several committees 7. Their composition and chairpersons as of 1 January 2010 are described on page 67. Each committees’ authorities and responsibilities are defined in detail in the Bylaws of the Board of Directors. 8 All the committees except the Presidium are chaired by independent directors.

According to the Bylaws of the Board of Directors at the request of any of its members a Board meeting without the Chairman present may be convened. The Roche Board meets once a year to assess the Chairman’s performance. This meeting, which is not attended by the Chairman, is chaired by one of the Vice-Chairmen.

3 http://www.roche.com/about_roche/management/ board_of_directors.htm and http://www.roche.com/about_roche/management/ executive_committee.htm 4 http://www.roche.com/about_roche/corporate_governance/ article_of_incorporation.htm 5 http://www.roche.com/about_roche/corporate_governance/ annual_general_meetings.htm 6 http://www.roche.com/about_roche/corporate_governance/ article_of_incorporation.htm 7 http://www.roche.com/about_roche/corporate_governance/ committees.htm 8 http://www.roche.com/about_roche/corporate_governance/ article_of_incorporation.htm

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Roche Business Report 2009

Corporate Governance

• The Board of Directors has established a system of

•

•

controls which is continuously monitored by the Audit Committee and by the Corporate Governance and Sustainability Committee and consists of the following elements: — Reports on financial and operating risks (risk management system) — System of internal controls over financial report­ ing (see page 125 and 128 in the Finance report) — Internal audits — Group Compliance Officer and Compliance officers in subsidiaries — Safety, Health and Environmental Protection Department — Corporate Sustainability Committee — Scientific and Ethics Advisory Group (SEAG), for issues relating to genetics and genetic engi­ neering (established in 1999).

Each year several black-out periods are imposed during which senior employees are prohibited from trading in company stock. The following black-out periods are in effect for 2010: 26 December to 3 February 1 April to 15 April 26 June to 22 July 1 October to 14 October Black-out periods can be changed by the Chairman of the Board of Directors if circumstances warrant.

In 2009 the Board of Directors met for five meet­ ings, each from 3 to 6 hours in length *; once for a full-day meeting *; and once for a three-day visit to a major subsidiary * which included a Board of Directors meeting *. The Board committees met as follows in 2009: — Presidium of the Board of Directors/Nomination Committee: three meetings (approx. 2 hours each *) — Audit Committee: four meetings (approx. 3 to 4 hours each *) — Corporate Governance and Sustainability Com­ mittee: three meetings (approx. 3 hours each *)

* These figures indicate the actual length of meetings and do not include the directors' extensive pre-meeting preparations and post-meeting follow-up activities.

11_L_Roche_AR09_ENG_Corporate Governance indd 72

•

•

— Remuneration Committee: three meetings 9 (approx. 2 to 3 hours each *).

The members of the Corporate Executive Committee are invited to attend for, and report in person on, those agenda items concerning them. When the situation warrants, members of the Enlarged Corporate Executive Committee may also be invited to attend. The Board committees invite the Chair­ man of the Board and other Corporate Executive Committee members to deliver reports at commit­ tee meetings and may elect to commission independent expert reports and call on the services of consultants. The risk management system is subject to continuous review, with findings being presented to the Audit Committee or the full Board.10 Internal Audit regularly briefs the Audit Committee with reference to ongoing audit reports.

Members of Internal Audit attend Audit Committee meetings, as do external auditors. For information on the external auditors, see page 73.

There are no management contracts which fall within the scope of Subsection 4.3 of the SIX Directive on Information relating to Corporate Governance.

4 Remuneration, shareholdings and loans All details regarding remuneration, shareholdings and loans are set forth in the separate Remuner­ ation Report on pages 75 to 85 and in the Finance Report, Notes 28 and 33 to the Roche Group Consolidated Financial Statements (‘Equity attribut­ able to Roche shareholders’ and ‘Related parties’, pages 106 and 120) and are listed in the Notes 6 and 7 to the Financial Statements of Roche Hold­ ing Ltd (‘Board and Executive remuneration’ and ‘Board and Executive shareholdings’, pages 142 and 144).

9 Remuneration Committee members are not permitted to con­ tribute to or attend Remuneration Committee meetings at which matters concerning them are deliberated or decided.

10 Additional information is provided in the Finance Report, Note 32 to the Roche Group Consolidated Financial Statements, ‘Risk management’, page 113).

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73

5 Participatory rights of shareholders • The participatory rights of shareholders are defined in Roche’s Articles of Incorporation. 11 As Roche shares are issued to bearer, there are no restrictions on admission to Annual General Meetings, with the exception that shares must be deposited within a specified period before the date of a meeting and an admittance card must be issued in the share­ holder’s name, as provided in §12 of the Articles of Incorporation. Any shareholder can elect to be represented by another shareholder at an Annual General Meeting. The Articles of Incorporation contain no restrictions on the exercise of voting rights, and the only quorum requirements are those stipulated in §16, in conformity with the Swiss Code of Obligations.

• Under §10.2 of the Articles of Incorporation, shareholders representing shares with a nominal value of at least 1 million Swiss francs can request the placement of items on the agenda of an Annual General Meeting. This must be done no later than 60 days before the date of the meeting.

6 Change of control and defensive measures • The Articles of Incorporation contain no provisions on the mandatory bid rule. Swiss law applies.

• There are no change-of-control clauses. Those components of remuneration based on Roche NES would be terminated in the event of an acquisition, and vesting period restrictions on pre-existing awards would be removed, so that all such options could be exercised immediately.

Audit Committee, see Article 8.1 of the Bylaws 12 ).

The statutory auditors participated in all (four) meetings of the Audit Committee in 2009.

The reports of statutory auditors on the Consoli­ dated Financial Statements and on the Financial Statements can be found on pages 126 and 149, respectively, of this year’s Finance Report.

KPMG received the following remuneration for their services as statutory auditors of Roche Hold­ ing Ltd and other Roche companies:

Auditing services

2009 2008 (millions of CHF)

21.9

19.7

Audit-related services

3.7

4.6

Tax consultancy services

1.3

1.8

26.9

26.1

Total

The statutory auditors are elected each year by the Annual General Meeting.

Ernst & Young Ltd received the following remunera­ tion for their services as the auditors of Genentech and Chugai:

2009 2008 (millions of CHF)

Chugai (2008 Genentech and Chugai) audits

2.2

5.4

Other consulting services provided to Genentech

7 Relationship to statutory auditors At the Annual General Meeting of Roche Holding Ltd on 10 March 2009, the shareholders voted to appoint KPMG AG (KPMG) as statutory auditors (information on how long the auditors and auditor in charge have been serving in these capacities is provided on page 69). The statutory auditors participate in Audit Committee meetings. They pre­ pare written and oral reports on the results of their audits. The Audit Committee oversees and assesses the auditors and makes recommendations to the Board (for information on the responsibilities of the

11_L_Roche_AR09_ENG_Corporate Governance indd 73

and Chugai

2.2

1.7

Total

4.4

7.1

11 http://www.roche.com/about_roche/corporate_governance/ article_of_incorporation.htm 12 http://www.roche.com/about_roche/corporate_governance/ article_of_incorporation.htm 13 http://www.roche.com/about_roche/corporate_governance/ article_of_incorporation.htm

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Roche Business Report 2009

Corporate Governance

8 Information policy • As provided by §33 of the Articles of Incorpora­ tion 13, corporate notices are published in the Swiss Official Gazette of Commerce and in other daily newspapers designated by the Board of Directors (Basler Zeitung, Finanz und Wirtschaft, L’Agefi, Le Temps, Neue Zürcher Zeitung).

• Roche reports its half-year and full-year results in business reports published in print and online formats and at media events. In addition, detailed first- and third-quarter sales figures are published each year in April and October. The most current list of publication dates is available in English and German on the Internet. 14 • All relevant information and documents, including all media releases, investor updates 15 and pre­ sentations to analyst and investor conferences are available on the Internet. Further publications can be ordered by e-mail, fax or telephone: basel. webmaster@roche.com, tel. +41 (0)61 688 83 39; fax +41 (0)61 688 43 43.

• The contact address for Investor Relations is: F. Hoffmann-La Roche Ltd, Investor Relations, Corporate Finance, 4070 Basel, Switzerland; tel. +41 (0)61 688 88 80, fax +41 (0)61 691 00 14.

Additional information, including details on specific contact persons, is available on the Internet. 16 9 Chief Compliance Officer The Chief Compliance Officer with his compliance officers network is committed to ensuring that Roche corporate principles are consistently com­ plied with throughout the Roche Group and also serves as a contact person for shareholders, employees, customers, suppliers and the general public on issues relating to the implementation of and compliance with these principles. Employees and other parties who become aware of violations of Roche corporate principles can bring them to the attention of their managers or supervisors or report them to the Chief Compliance Officer (Urs Jaisli, direct phone number: +41 (0)61 688 40 18, e-mail: urs.jaisli@roche.com). Such disclosures will be treated confidentially. In addition, as of the end of 2009, employees may anonymously report

11_L_Roche_AR09_ENG_Corporate Governance indd 74

irregularities or complaints in their corresponding mother language via a ‘speak-up hotline’. The Chief Compliance Officer reports regularly to the Corporate Governance and Sustainability Committee.

10 Non-applicability/negative disclosure It is expressly noted that any information not contained or mentioned herein is non-applicable or its omission is to be construed as a negative declaration (as provided in the SIX Swiss Exchange Corporate Governance Directive and the Com­ mentary thereto).

14 http://www.roche.com/media.htm 15 http://www.roche.com/investors.htm 16 http://www.roche.com/investors/contacts.htm

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Remuneration Report

Summary Roche’s success depends on the abilities and dedication of its people. Recognition of this forms the basis of our remuneration policy and system.

One of the primary aims of our remuneration policy is to encourage a long-term focus and align management’s interests with the interests of Roche’s shareholders and holders of Roche’s non-voting equity securities (NES).

• This remuneration report will be submitted •

• • •

•

separately for approval at the 2010 Annual General Meeting.

The remuneration of Corporate Executive Committee (CEC) members and other senior Roche executives is comprised of: — Base salary — Bonus — Special stock awards (non-voting equity securities subject to vesting period 3–10 years) — Stock-settled Stock Appreciation Rights (S-SARs) 1 — Performance Share Plan (PSP) awards With the exception of Severin Schwan and Silvia Ayyoubi, none of the CEC members received an increase in base salary in 2009. 2 Based on Roche’s share price performance, no NES will be awarded for the 2007–2009 PSP cycle.

The S-SARs granted in 2006, 2007 and 2008, have strike prices above the current NES price and have no value for the recipients. This can change if Roche’s future NES price improves.

There has been no change in the base remuneration of the Board of Directors since 2001.

Please see the rest of this report for full details 3.

Remuneration policy Roche fundamentally renewed its remuneration policy in 2004 and revised it with minor changes in 2009.

It is part of a framework of employee policies aimed at motivating and retaining current employees, attracting talented new ones and helping all Roche employees to perform at consistently high levels. Our remunera-

12_L_Roche_AR09_ENG_Remuneration Report indd 75

tion policy is designed to foster value creation and reinforce a culture of performance and innovation, and it applies to non-managerial employees as well as to managers. The key principles underpinning this policy are: • Focus on value creation • Pay for performance • Enabling employees to share in the company’s success • Fairness and transparency in remuneration decisions • A balanced mix of long- and short-term remuneration components • Market-competitiveness.

Base pay, bonuses, blocked non-voting equity securities (NES), awards of Stock-settled Stock Appreciation Rights (S-SARs) and a Performance Share Plan support these principles. These remu­ neration components are linked to our company’s financial performance and commercial success and thus align the interests of Roche employees with those of the shareholders. The amount of the separate components of remuneration for each individual member of the Corporate Executive Committee is shown in the individual description of the remuneration of the Corporate Executive Committee in this report.

Base pay Base pay levels are determined according to market data for specific positions and individual employees’ abilities, experience and performance over time. Pay increases are linked to individual performance and 1 See ‘Stock options/Stock-settled Stock Appreciation Rights (S-SARs)’, page 82.

2 On 1 April 2008, the base pay of the Corporate Executive ­Committee was generally increased for the last time. For Gottlieb Keller resulted a difference between the base pay received for the calendar year 2008 and 2009 (see table on page 78) due to the increase of the base pay on April 2008.

3 See also in the Finance Report, Note 33 to the Roche Group Consolidated Financial Statements (‘Related parties’, page 120) and Notes 6 and 7 to the Financial Statements of Roche Holding Ltd (‘Board and Executive remuneration’ and ‘Board and Executive shareholdings’, page 142 and 144).

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Roche Business Report 2009

Remuneration Report

also take into account prevailing market conditions, affordability and the company’s overall economic situation.

Bonuses Bonuses are awarded in recognition of individual contributions to value creation which go beyond normal job expectations, and they are meant to be an incentive to create or strengthen new business opportunities and strive for outstanding results. Bonus amounts are linked to Group or divisional business performance and to the achievement of individual and functional, measurable and qualitative performance objectives.

The Remuneration Committee of the Board of Directors has defined the Corporate Executive Committee members bonuses in December 2009 based on results achieved for 2009.

Special stock awards In 2009 non-voting equity securities have been granted to a selected number of Roche employees.

The awards vest immediately but are blocked for three years. Recipients have the option to extend the blocking period to ten years. The grant of those nonvoting equity securities was awarded as part of the bonus payments for 2009 with the aim to both immediately reward the achievement of specific objectives and to foster the interest in a long-term positive development.

Stock-settled Stock Appreciation Rights (S-SARs) Stock-settled Stock Appreciation Rights were introduced on 1 January 2005, thus establishing a uniform system of remuneration throughout Roche. S-SARs entitle holders to benefit financially from any increase in the value of Roche’s non-voting equity securities between the grant date and the exercise date. Detailed information is available on page 79 and page 82 to 85.

Performance Share Plan The members of the Corporate Executive Committee and other members of senior management (currently some 120 individuals worldwide) participate in the Performance Share Plan (PSP). The PSP was established in 2002 for periods of three years each and

12_L_Roche_AR09_ENG_Remuneration Report indd 76

is based on a three-year comparison of the total shareholder return (TSR) with 17 competing companies 4. In 2009 there were three overlapping perfor­ mance cycles, PSP 2007–2009, PSP 2008–2010 and PSP 2009–2011 of which PSP 2007–2009 closed on 31 December 2009.

Details for the PSP 2007–2009 calculation and additional information are set forth in ‘Remuneration of members of the Corporate Executive Committee, D. Performance Share Plan (PSP)’, page 80.

Remuneration of the Board of Directors and the Corporate Executive Committee Each year the Remuneration Committee, which is entirely comprised of independent external members of the Board of Directors, sets remuneration for the members of the Board of Directors and the Corporate Executive Committee (cash payments, bonuses, options, Stock-settled Stock Appreciation Rights and policy decisions about pension benefits). The terms of the Performance Share Plan are determined annually by the Board of Directors, acting upon recommen­ dations from the Remuneration Committee. The Remuneration Committee continuously tracks salary trends in the market and reports to the Board of Directors. Information on this committee’s remit and its procedures for making remuneration decisions can be found in the Bylaws of the Roche Board of Directors 5.

Following the revision of the remuneration policy including market comparisons with the world’s major pharmaceutical companies, the Remuneration Committee has determined the bonuses and remuneration of the Chairman of the Board of Directors, the members of the Corporate Executive Committee taking into consideration personnel changes. In doing so, the ­following changes were noted: 4 Peer set for 2009: Abbott Laboratories, Amgen, Astellas, AstraZeneca, Bayer, Becton Dickinson, Biogen Idec, Bristol-Myers Squibb, Eli Lilly, Gilead, GlaxoSmithKline, Johnson & Johnson, Merck & Co., Novartis, Pfizer, Sanofi-Aventis, Takeda.

5 http://www.roche.com/about_roche/corporate_governance/ article_of_incorporation.htm

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77

• A further important step for the transfer of duties

•

• •

from the Chairman to the CEO has been completed with the completion of the integration of Genentech. Accordingly, the Board plans to reduce the Chairman’s base pay in 2010 (for detailed infor­ mation see page 82).

On 31 December 2009, William M. Burns, Jonathan K.C. Knowles and Jürgen Schwiezer retired from the company and consequently stepped down as members of the Corporate Executive Committee.

As of 1 January 2010 Daniel O’Day has taken over as Chief Operating Officer (COO) of the Diagnostics Division.

As of 1 January 2010 Pascal Soriot has taken over his new function as COO of the Pharmaceuticals Division.

The following pages provide detailed information on the remuneration earned by each member of the

Board of Directors and by each member of the Corporate Executive Committee for 2009, in comparison with figures for previous years, and an outlook on the Chairman’s remuneration development for 2010.

1 Remuneration 1.1 Remuneration of members of the Board of Directors | In 2009 the members of the Board of Directors 6 received the remuneration shown in the table ‘Remuneration of members of the Board of Directors’ below for their Board activities.

Remuneration of all members of the Board of Directors will again remain unchanged for 2010. The nonexecutive members of the Board of Directors were not awarded any shares, non-voting equity securities, 6 For a list of members, their positions and their committee memberships and chairmanship, see page 67.

Remuneration of members of the Board of Directors­

F. B. Humer

Remuneration 2009 (in CHF)

Additional compensation 2009 for committee members/chairs 7 (in CHF)

81 8)

50,000

(see page

Additional special compensation 2009

(Remuneration as Chairman of the Board of Directors see page 81 8)

B. Gehrig

400,000 9

A. Hoffmann

400,000 9

P. Baschera

300,000

30,000

J. I. Bell

300,000

30,000

P. Brabeck-Letmathe

300,000

–

L. J. R. de Vink

300,000

30,000

– –

W. Frey

300,000

60,000

D. A. Julius

300,000

60,000 60,000

A. Oeri

300,000

W. Ruttenstorfer

300,000

30,000

H. Teltschik

300,000

60,000

Compensation for serving on the boards of Roche subsidiaries, see page 78

B. Weder di Mauro

300,000

60,000

See page 78

7 With the exception of members of the Presidium and the Vice-Chairmen, Board members receive CHF 30,000/year for each committee they serve on and CHF 60,000/year for each committee they chair.

8 See ‘G. Highest total remuneration to a member of the Board of Directors', page 81and 82.

9 Remuneration for serving as Vice-Chairman of the Board.

12_L_Roche_AR09_ENG_Remuneration Report indd 77

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78

Roche Business Report 2009

Remuneration Report

Remuneration of members of the Corporate Executive­ Committee A. Base pay | in CHF Annual salary 2009

Annual salary 2008

Annual salary 2007

S. Schwan

2,875,002

2,283,340

1,100,000

S. Ayyoubi

725,004

481,670

*

2,000,000

2,000,000

2,000,000 2,000,000

W. M. Burns E. Hunziker

2,000,000

2,000,000

G. A. Keller

1,500,000

1,350,000

900,000

J. K. C. Knowles

1,350,000

1,350,000

1,350,000

J. Schwiezer

1,200,000

1,200,000

*

P. Soriot

1,246,878

*

*

Total

12,896,884

* Not a member of the Corporate Executive Committee.

Stock-settled Stock Appreciation Rights (S-SARs) 10, stock options or Restricted Stock Units (RSUs) in 2009. Horst Teltschik received honoraria amounting to 19,635 euros (29,648 Swiss francs) for serving on the boards of several Roche subsidiaries in Germany.

Beatrice Weder di Mauro was reimbursed 5,000 US

dollars (5,450 Swiss francs) for her participation at a course on ‘Audit Committees in a new Era of Governance’ at Harvard Business School.

10 See ‘Stock options/Stock-settled Stock Appreciation Rights (S-SARs)’, page 82.

Bonus Bonus for 2009

Bonus for 2008

Bonus for 2007

Total (in CHF)

Cash payment (in CHF)

Cash payment (in CHF)

4,675,178

3,000,000

2,500,000

Special stock awards (Blocked non-voting equity securities)

S. Schwan

Cash payment (in CHF)

Number

Blocking period (years)

3,000,000

20,450

10

Value (in CHF)

1,675,178 * *

S. Ayyoubi

1,000,000

4,485 * **

3

1,637,909

500,000

*

W. M. Burns

4,000,000

13,046 * **

3

1,606,905 * *

637,909 * ***

5,606,905

2,500,000

2,500,000

E. Hunziker

2,000,000

13,046 * **

3

1,606,905 * *

3,606,905

2,200,000

2,200,000

G. A. Keller

1,000,000

9,931 * **

10

813,506 * *

1,813,506

1,000,000

1,000,000

J. K. C. Knowles

1,000,000

–

1,000,000

308,900

1,000,000

–

J. Schwiezer

2,000,000

–

–

2,000,000

1,000,000

*

P. Soriot

2,000,000

–

–

2,000,000

*

*

6,340,403

22,340,403

Total

16,000,000

* Not a member of the Corporate Executive Committee. ** Day value at grant of non-voting equity securities: CHF 146.70/NES. Calculation of value in consideration of reduction of value due to blocking period (reduced market value: for 3 years = 83.962%; for 10 years = 55.839%). *** Excluding contribution to AHV/IV/ALV: Swiss social security programmes providing retirement, disability and unemployment benefits. **** Day value at grant of non-voting equity securities: CHF 169.40/NES. Calculation of value in consideration of reduction of value due to blocking period (reduced market value: for 3 years = 83.962%).

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29 01 2010 00:50 59

79

For 2009 the members of the Board of Directors received remuneration totalling 18,608,650 Swiss francs 11.

No additional remuneration was paid to members of the Board of Directors.

1.2 Remuneration of members of the Corporate Executive Committee | The general provisions assigning authority for decisions on Corporate Executive Committee remuneration to the Remuneration Committee and to the Board of Directors are outlined on page 76 of this remuneration report. For 2009 the members of the Corporate Executive Committee received remuneration totalling 54,858,227 Swiss francs 12.

B. Bonus In 2009 the bonus for some of the members of the Corporate Executive Committee is divided in two parts: • For three or ten years blocked non-voting equity securities (granted in 2009) and • Cash payment due for payment at the end of April 2010.

With the element of blocked non-voting equity securities the bonus reflects an even stronger link to the long-term performance of the company.

11 See ‘Remuneration of members of the Board of Directors’, page 77.

12 See ‘Remuneration of members of the Corporate Executive Committee’, (A.–F. and H.) excluding AHV/IV/ALV, page 78 to 83.

C. Stock-settled Stock Appreciation Rights (S-SARs) S-SARs 13 2009 (value in CHF 14)

S-SARs 13 2008 (value in CHF 14)

S-SARs 13 2007 (value in CHF 14)

S. Schwan

3,559,849

2,225,542

1,068,062

S. Ayyoubi

889,993

445,146

*

W. M. Burns

2,224,920

2,225,542

1,780,140

E. Hunziker

1,957,935

1,958,480

1,780,140

G. A. Keller

1,334,989

1,335,313

890,125

J. K. C. Knowles

1,334,989

1,335,313

890,125

889,993

890,229

*

1,401,735

*

*

J. Schwiezer P. Soriot Total

13,594,403

* Not a member of the Corporate Executive Committee.

13 See ‘Stock options/Stock-settled Stock Appreciation Rights (S-SARs)’, page 82.

14 Black-Scholes value as described in ‘Stock options/Stock-settled Stock Appreciation Rights (S-SARs)’, page 82 to 85.

Values for 2007 and 2008 according to Annual Report 2008, page 78.

At the present time the Stock-settled Stock Appreciation Rights granted in 2006, 2007 and 2008, most of which can now be exercised, following the end of the vesting period in February 2010, have no value for the recipients. 15 Members of the Corporate Executive Committee additionally receive annual expense allowances of 30,000 Swiss francs, totalling 210,000 Swiss francs, while Pascal Soriot, who was based in San

12_L_Roche_AR09_ENG_Remuneration Report indd 79

Francisco from March to December 2009, received allowances and tax equalisation totalling 635,246 Swiss francs.

15 See strike prices in table ‘Stock options and S-SARs’, page 85.

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80

Roche Business Report 2009

Remuneration Report

D. Performance Share Plan (PSP) The members of the Corporate Executive Committee and other members of senior management (currently some 120 individuals worldwide) participate in the Performance Share Plan (PSP).

In 2006 the PSP moved to overlapping three-year performance cycles, with a new cycle beginning each year. In 2009 there were thus three cycles in progress (PSP 2007–2009, PSP 2008–2010 and PSP 2009–2011); the PSP 2007–2009 ended on 31 December 2009.

Under the provisions of this plan, a number of nonvoting equity securities (NES) have been reserved for the participants in each cycle. The number of secu­ rities actually awarded will depend on whether and to what extent an investment in Roche securities (shares and NES) outperforms the average return on an investment in securities issued by a peer set of comparator companies 16. Comparisons are based on

the securities’ market prices and dividend yields, i.e. on Total Shareholder Return (TSR). To reduce the effect of short-term market fluctuations, security prices are averaged over the three months (October to December) prior to the start of a performance cycle and over the three months (October to December) at the end of the cycle. If Roche securities perform as well as or better than those of 75% of the peer set and, in addition, Roche’s TSR increases at least 10% during a cycle, the Board of Directors can elect to increase the maximum NES award by as much as two-fold. In the event that an investment in Roche securities underperforms the average return delivered by the peer companies, fewer or no NES will be awarded.

In 2009 NES were reserved under the plan for members of the Corporate Executive Committee as shown in 16 See footnote 4, page 76.

Performance Share Plan (PSP)

Target number of NES for PSP 2009–2011

Target number of NES for PSP 2008–2010

No NES awarded for PSP 2007–2009

2009 17 Total estimated value of PSP awards (2007–2009 and 2008–2010 and 2009–2011) (value in CHF)

S. Schwan

5,011

1,965

–

408,793

217,804

557,264

S. Ayyoubi

1,002

638

–

96,104

84,392

*

W. M. Burns

4,009

3,276

–

426,901

447,200

1,612,918

E. Hunziker

4,009

3,276

–

426,901

454,188

1,904,622

G. A. Keller

3,006

1,474

–

262,528

202,908

738,912

–

2,211

–

129,564

318,392

1,364,636

2,405

1,965

–

256,082

225,279

*

*

*

J. K. C. Knowles J. Schwiezer P. Soriot Total

2,104

1,638

–

219,281

21,546

16,443

–

2,226,154

2008 18 Total estimated value of PSP awards (2006–2008, 2007–2009 and 2008–2010) (value in CHF)

2007 18 Value of PSP awards (2005–2007, 2006–2008 and 2007–2009) (value in CHF)

* Not a member of the Corporate Executive Committee.

17 Total estimated value for 2009: PSP 2007–2009: none of the originally targeted NES awarded.

PSP 2008–2010 and 2009–2011: Estimated value calculated using the year-end price as of 31 December 2009, CHF 175.80 per nonvoting equity security (NES), based on the number of NES originally targeted subject to changes in the number and value of NES awardable under the plan on 31 December 2010 and 31 December 2011, respectively, and spread over the relevant period of time, i.e. ¹⁄³ for the year 2009. The Board of Directors will vote on the actual allocation of NES originally targeted on 31 December 2010 and 31 December 2011, respectively, according to the TSR achieved.

18 Detailed calculation see Annual Report 2008, page 79.

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81

non-voting equity securities (NES) up to an amount equal to 10% of their annual salary at a 20% discount.

NES purchased under this plan are subject to a holding period, which is four years in Switzerland.

the table on page 80. The Board of Directors will decide on the actual level of NES or cash equivalent awards for the cycles 2008–2010 and 2009–2011 after the close of the 2010 and 2011 financial years, respectively. The aim of the PSP is to provide an incentive to participants to achieve steady value growth.

F. Other remuneration, emoluments and loans Gottlieb Keller received a nonrecurring special payment of 50,000 Swiss francs for his 25 years’ service for the company. In 2009 pensions totalling 2,083,820 Swiss francs were paid to two former Corporate Executive Committee members. Four members of the Corporate Executive Committee received a total of 93,750 US dollars (102,187 Swiss francs) for serving on the Chugai Board.

At the end of the PSP 2007–2009 cycle (based on a three-month moving average at constant exchange rates) with distributed dividends totalling 11.211 billion Swiss francs (2007: 2.932 billion Swiss francs; 2008: 3.967 billion Swiss francs; 2009: 4.312 billion Swiss francs), the TSR of the Roche securities (NES and shares) ranked #13, compared with its peer set of companies operating in the same industry.

Therefore, according to the terms of the plan, the participants received none of the originally targeted NES (see table on page 80 for details).

E. Indirect benefits Employer contributions made in 2009 to social security schemes, pension plans and a Group-wide employee stock purchase plan (Roche Connect) in respect of members of the Corporate Executive Committee are shown in the table ‘Indirect benefits in 2009’ below.

Roche Connect is a voluntary stock purchase plan offering employees the opportunity to buy Roche

G. Highest total remuneration to a member of the Board of Directors Franz B. Humer as the chairman was the member of the Board with the highest total remuneration for 2009 (see ‘Remuneration of members of the Board of Directors’, page 77 to 79). The Chairman’s remuneration consists of base salary and bonus awards.

As Chairman of the Board after the handover of his executive function as CEO at the Annual General Meeting on 4 March 2008, he did not receive any additional S-SARs or NES from new PSP cycles and was no longer enrolled in any Roche stock option plan or S-SARs.

Indirect benefits in 2009 Pension funds/MGB 19 (in CHF)

AHV/IV/ALV 20 (in CHF)

Roche Connect (in CHF)

Payments for tax consulting services (in CHF)

S. Schwan

456,941

386,096

69,790

5,488

S. Ayyoubi

449,635

117,920

2,375

1,937

W. M. Burns

37,120

405,969

30,000

33,378

E. Hunziker

650,892

311,819

49,992

5,985

G. A. Keller

530,330

177,106

37,500

–

J. K. C. Knowles

37,357

132,927

9,375

39,446

J. Schwiezer

77,695

128,335

9,600

5,563

P. Soriot Total

254,576

248,408

4,166

3,809

2,494,546

1,908,580

212,798

95,606

19 M GB: Stiftung der F. Hoffmann-La Roche AG für Mitarbeiter-Gewinnbeteiligung (employee profit-sharing foundation supplementing occupational pension benefits).

20 AHV/IV/ALV: Swiss social security programmes providing retirement, disability and unemployment benefits.

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82

Roche Business Report 2009

Remuneration Report

The Board of Directors intends to reduce the Chairman’s base salary in 2010 to 4 million Swiss francs (as of 1 April 2010). His total remuneration, including bonuses, contributions to pension funds and additional compensation (expense allowance) will, depending on the achievement of objectives, not exceed the maximum amount of 11 million Swiss francs.

H. Highest total remuneration to a member of the Corporate Executive Committee Severin Schwan as CEO was the member of the Corporate Executive Committee with the highest total remuneration for 2009 (see ‘Remuneration of members of the Corporate Executive Committee’, A.–F., page 78 to page 81). No additional remuneration was paid to current or former members of the Corporate Executive Committee.

1.3 Security holdings | Directors André Hoffmann and Andreas Oeri and members of the founders’

families who are closely associated with them belong to a shareholder group with pooled voting rights.

At the end of 2009 this group held 80,020,000 shares (50.01% of issued shares). Detailed information about this group can be found in the Finance Report, Note 33 to the Roche Group Consolidated Financial Statements (‘Related parties’, page 120) and in the Note 4 to the Financial Statements of Roche Holding Ltd (‘Significant shareholders’, page 141). In addition, as of 31 December 2009 the members of the Board of Directors and persons closely associated with them and the members of the Executive Committee and persons closely associated with them held shares and NES as shown in the table on page 84.

1.4 Stock options/Stock-settled Stock Appreciation Rights (S-SARs) | At 31 December 2009 Franz B. Humer (being the only member of the Board of Directors holding options and as of 1 January 2005 S-SARs due to his former position as CEO) and the members

Highest total remuneration to a member of the Board of Directors 2009 (in CHF)

2008 21 (in CHF)

Salary

6,030,000

6,030,000

Cash bonus

2,200,000

5,000,000

Special stock awards (for 10 years blocked non-voting

2,792,018

–

11,022,018

11,030,000

equity securities 22) Total Performance Share Plan 23 2007–2009 24 Total Pension funds/MGB 26 Roche Connect Total (value)

None awarded 2,995,109 75,000 14,353,552 27

918,613 25 2,955,697 64,585 15,228,951

21 For detailed calculation of the remuneration as Chairman and CEO for 2008 see Annual Report 2008, page 81.

22 Bonus in form of for 10 years blocked non-voting equity securities; 34,084 non-voting equity securities (NES), day value at grant of non-voting equity securities: CHF 146.70/NES. Calculation of value (including contribution to AHV/IV/ALV) in consideration of reduction of value due to blocking period (reduced market value: for 10 years = 55.839%.

23 Franz B. Humer does not take part in the PSP 2008–2010 and 2009–2011.

24 P SP 2007–2009: None of the originally targeted NES awarded.

25 PSP award.

26 M GB: Stiftung der F. Hoffmann-La Roche AG für Mitarbeiter-Gewinnbeteiligung (employee profit-sharing foundation supplementing occupational pension benefits).

27 Includes additional compensation for Committee members, payments for tax consulting services, remuneration for serving on the Chugai Board, not including employer contribution to AHV/IV/ALV (CHF 762,644).

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83

Highest total remuneration to a member of the Corporate Executive Committee 2009 (in CHF)

Salary

2008 28 (in CHF)

2,875,002

2,283,340

Cash bonus

3,000,000

3,000,000

Special stock awards (for 10 years blocked non-voting

1,675,178

–

7,750,180

5,283,340

equity securities 29 ) Total S-SARs (Black-Scholes value 30 at grant minus 11%)

3,559,849

2,225,542

Total

408,793

217,804

Pension funds/MGB 32

456,941

202,320

69,790

48,956

Performance Share Plan 31 (2008–2010, 2009–2011)

Roche Connect Total (value)

12,101,478 33

8,018,883

28 For detailed information see Annual Report 2008, page 82.

29 Calculation see ‘Remuneration of members of the Corporate Executive Committee, B. Bonus’, page 78.

30 Black-Scholes value as described in ‘Stock options/Stock-settled Stock Appreciation Rights (S-SARs)’, page 82 to 85.

31 Basic rules and detailed calculation see ‘Remuneration of members of the Corporate Executive Committee, D. Performance Share Plan’, page 80, footnote 17, respectively.

32 M GB: Stiftung der F. Hoffmann-La Roche AG für Mitarbeiter-Gewinnbeteiligung (employee profit-sharing foundation supplementing occupational pension benefits).

33 Includes an annual expense allowance, payments for tax consulting services and remuneration for serving on the Chugai Board excluding employer contribution to AHV/IV/ALV payments.

of the Corporate Executive Committee held options and Stock-settled Stock Appreciation Rights (S-SARs; first introduced on 1 January 2005) as shown in the table ‘Stock options and S-SARs’ on page 85.

All of the options shown in the table were issued by Roche as employee stock options. Each option entitles the holder to purchase one Roche non-voting equity security (NES).

Under the terms of this multi-year option plan, the strike price for options shown was the closing price for Roche NES on the last day of trading prior to the Roche Annual Media Conference. All of the options shown are non-tradable. One-third of the options are subject to a vesting period of one year, one-third have a vesting period of two years, and one-third a vesting period of three years. Unvested options lapse without compensation if employment is terminated voluntarily

12_L_Roche_AR09_ENG_Remuneration Report indd 83

(for reasons other than retirement), while vested options must be exercised within a limited period of time. The fair value of the options is calculated at the date of issue using the Black-Scholes formula and as if the options were tradable, with an 11% deduction for the average two-year vesting period.

The S-SARs shown in the table on page 85 were introduced by Roche on 1 January 2005 in place of stock options. S-SARs entitle holders to benefit financially from any increase in the value of Roche’s NES between the grant date and the exercise date.

The strike price for S-SARs under the terms of this multi-year plan was the closing price for Roche NES on the first day of trading after the Roche Annual Media Conference. All S-SARs vest within three years of the grant date: i.e. one-third vest at the end of one year, one-third at the end of two years, and onethird at the end of three years. Vested S-SARs must

29 01 2010 00:50 59

84

Roche Business Report 2009

Remuneration Report

Security holdings (at 31 December 2009) Close relatives’ security holdings (number/type)

Others (number)

Stock options, S-SARs see 1.4

Shares (number)

NES (number)

3

196,528

–

50

150

–

–

–

250,000 UBS Long/Short Certificates linked to

Board of Directors F. B. Humer B. Gehrig A. Hoffmann

–*

365,200**

Roche Bearer Shares/Roche Non-Voting Equity securities (Valor: 10 690 162, ISIN: CH0106901629) 365,000 OTC Call options UBS AG on Roche Non-Voting Equity securities, 21.08.2008–20.08.2010 (Valor: 4 103 145)** P. Baschera

1

–

–

–

J. I. Bell

300

1,647

–

–

P. Brabeck-Letmathe

800

2,195

–

–

–

–

–

1,000 American Depository Receipts (ADR),

L. J. R. de Vink

RHHBY, US ISIN: US7711951043 W. Frey D. A. Julius A. Oeri

72,500

–

–

350

–

1,550 NES

–*

351,793

– – 250,000 UBS Long/Short Certificate linked to Roche Bearer Shares/Roche Non-Voting Equity securities (Valor: 10 690 162, ISIN: CH0106901629)

W. Ruttenstorfer

1,000

–

–

–

H. Teltschik

385

–

–

–

B. Weder di Mauro

200

–

–

–

75,589

917,513

1,550 NES

Total

Corporate Executive Committee S. Schwan

3

32,996

270 NES

Stock options, S-SARs see 1.4

S. Ayyoubi

3

12,113

–

Stock options, S-SARs see 1.4

W. M. Burns

3

78,167

–

Stock options, S-SARs see 1.4

E. Hunziker

3

60,635

–

Stock options, S-SARs see 1.4

G. A. Keller

1,063

27,937

140 NES

Stock options, S-SARs see 1.4

3

19,558

–

Stock options, S-SARs see 1.4

J. Schwiezer

3

11,032

–

Stock options, S-SARs see 1.4

P. Soriot

2

6,276

–

Stock options, S-SARs see 1.4

1,083

248,714

410 NES

J. K. C. Knowles

Total

* Shares held by the shareholders group with pooled voting rights not listed. ** Share-settled loan transaction as of 21 August 2008 reported to SIX Swiss Exchange.

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29 01 2010 00:50 59

85

Stock options and S-SARs Number of stock options and S-SARs held by current and former members of the Corporate Executive Committee on 31 December 2009 (S-SARs first issued in 2005) 2009 34

2008 34

2007 34

2006 34

S. Schwan

175,362

105,576

29,190

15,696

S. Ayyoubi

43,842

21,117

3,243

W. M. Burns

109,602

105,576

E. Hunziker

96,450

G. A. Keller J. K. C. Knowles

2005 34

2004 35

2003 35

Total

4,983 35

1,864

1,635

334,306

2,517

3,957

2,360

–

77,036

48,651

26,160

34,074

14,874

–

338,937

92,907

48,651

26,160

34,074

20,915

–

319,157

65,763

63,345

24,327

15,696

3,150

4,000

–

176,281

65,763

63,345

24,327

15,696

–

–

–

169,131

J. Schwiezer

43,842

42,231

9,819

5,565

8,871

5,610

–

P. Soriot

69,051

63,345

29,190

23,544

–

–

89,109

49,623

Corporate Executive Committee

115,938 206,766

+ 21,636 Total

669,675

557,442

217,398

152,670

1,635

1,737,552

241,922

Former Corporate Executive Committee members F. B. Humer

None 36

Strike price (CHF)

145.40

None 36 195.80

48,651

52,317

85,179

55,775

–

229.60

195.00

123.00

129.50

77.80

3.2.2012

3.2.2011

25.2.2010

20.89

31.92

16.27

196.50 Market price per NES

175.80

on 31 December 2009 (CHF) Expiry date

5.2.2016

31.1.2015

8.2.2014

2.2.2013 2.1.2013

Grant value per

20.30

21.08

36.59

option

34.02 37.02

and (starting in 2005) per S-SAR in CHF (Black-Scholes value minus 11%) 34 S-SARs. 35 Stock options.

36 As of 2008 Franz B. Humer does not receive any additional S-SARs.

be exercised (converted into NES) within seven years of the grant date, and unexercised S-SARs lapse without compensation. The fair value of the options is calculated at the date of issue using the BlackScholes formula and as if the options were tradable, with an 11% deduction for the average two-year vesting period.

12_L_Roche_AR09_ENG_Remuneration Report indd 85

The strike prices, expiry dates and grant values for options and S-SARs are shown in the table above.

The numbers of options and S-SARs as calculated at the time of issue have been entered as values in the table ‘Remuneration of members of the Corporate Executive Committee, C. Stock-settled Stock Appre­ ciation Rights (S-SARs)’ on page 79.

29 01 2010 00:50 59

He’s sharpening his weapons

for the fight against advanced breast cancer When biotechnology was in its infancy thirty years ago, nobody would have guessed that it would one day give rise to a completely new class of powerful, targeted medicines: monoclonal antibodies (MAbs).

Today, MAbs are being used successfully not only in the fight against cancer but also to treat rheumatoid arthritis. It took courage, skilful management and long-term commitment to enable Roche to invest in this technology at such an early stage. The skill and dedication of our people was vital in transforming MAbs into a medical and business success story. Today, around two thirds of all Roche drugs are based on biotechnology, and a new approach — joining MAbs with chemotherapy — promises to make the treatment of cancer even more ­t argeted, with fewer side effects.

T-DM1 is a novel antibody-drug conjugate that combines two anti-tumour strategies in one medicine: the directed binding of a monoclonal antibody to a highly expressed cancer protein, leading to the targeted delivery of a potent chemotherapy agent. This selectively kills cancer cells and ­m inimises damage to healthy tissue.

13_Bildstrecke_ENG_S86-87 indd 1

28 01 2010 23:36:19

13_Bildstrecke_ENG_S86-87 indd 2

28 01 2010 23:36:22

Corporate Responsibility | As a leading healthcare company, our goal is to develop and make available products and services that address unmet medical needs and are of real value to society. We aim to provide tangible improvements in patients’ health, quality and length of life – this is our core contribution. We do this in a responsible and sustainable manner that respects the needs of the individual, the society and the environment. To make this ­possible, we are committed to finding and retaining talented people and developing their skills.

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29 01 2010 00:11:24

89

In brief

Our pursuit of scientific excellence enables us to address unmet medical needs, helping patients lead longer and better lives. We pioneer differentiated medicines and translate those into benefits for patients through outreach programmes. Our efforts to understand disease biology and to develop medicines and diagnostics that prevent, detect, correctly diagnose and effectively treat disease help us achieve our goal of personalised healthcare (PHC) throughout our value chain.

As we see it, our greatest responsibility is to keep up this work. Our medicines take between eight and twelve years to bring to market, so a focus on longterm success is critical. We run our business in a sustainable manner that respects individuals, society and the environment, and we find, retain and develop talented people to make this possible. Our values of integrity, courage and passion guide the daily behaviour and decisions of all employees, and we seek evidence of these values from leaders in particular.

These values encapsulate the working environment and attitudes required to create innovative thinking.

Our approach We try to balance economic prosperity, social commitment and environmental protection in every aspect of our business. We believe this creates value for all our stakeholders and helps earn their trust and commitment. Engaging with relevant groups ensures our approach is effective. We have identified six material corporate responsibility areas: • Innovation capacities • Value of Roche products and services • Pricing and reimbursement conditions • Access to Roche products and services • Relationship with stakeholders • Being an attractive and responsible employer.

We monitor the effectiveness of our approach and our progress in these areas using a set of key performance indicators (KPIs), for which we now have two full years of data. While these KPIs are for internal management only, we include a range of performance measures throughout this section of our annual

14_L_Roche_AR09_ENG_Corporate Responsibility Part1 indd 89

report, and on our website. Our efforts were rewarded in 2009 when Roche was named healthcare super sector leader in the Dow Jones Sustainability Indexes (DJSI) for the first time. Roche has been included in the DJSI World Indexes for six consecutive years and is included in the FTSE4Good Index.

Managing corporate responsibility Corporate responsibility is an integral part of our daily work rather than the duty of a single department.

Our Corporate Sustainability Committee (CSC) co­ ordinates our approach. With representatives from all core functions and businesses across the Group, the CSC reports to the Corporate Executive Committee and the Board’s Corporate Governance and Sustain­ ability Committee. The CSC works to identify and assess significant social, ethical and environmental risks as well as related opportunities. It also develops and revises corporate positions and guidelines on topics of key interest to our stakeholders. In October 2009 the CSC held its fifth annual workshop, attended by around 60 employees across the Group.

Main topics discussed were access to healthcare and the value of our products and services. During the year, the CSC developed five new position papers on topics related to corporate responsibility.

2010 objectives • Remain one of the top healthcare companies in the DJSI • Integrate best practices from Genentech’s sustainability activities • Improve energy efficiency (gigajoules per employee) by 10% by 2014 from 2009.

More on the web • Sustainability principles, strategy and management: www.roche.com/principles

• Stakeholder engagement: www.roche.com/stakeholder_dialogue

• Corporate Sustainability Committee Charter: www.roche.com/csr_committees

• Key performance indicators: www.roche.com/sus-kpi.pdf

• Safety, health and environment performance: www.roche.com/she_figures_and_facts

• Employee topline figures: www.roche.com/employees

29 01 2010 00:11:24

90

Roche Business Report 2009

Corporate Responsibility

Responsible practices

How we do things is as important as what we do.

The trust of the many diverse groups we encounter in the course of our work depends on us carrying out each and every aspect of our business responsibly.

As an innovation driven company we focus on understanding the mechanisms underlying the disease and translating this into developing products that improve patients’ health. This often means exploring emerging technologies as they could provide important medical breakthroughs and form the basis of our product pipeline in the long term. At the same time, we must assess any risks or ethical dilemmas that cutting-edge technologies pose with great scrutiny before and while using them.

Customer relationships Our customers range from patients, healthcare professionals, hospitals and reference laboratories to public and private healthcare payers. Understanding and responding to their different needs and expec­ tations helps to improve our commercial effectiveness.

Various customer groups provide input into: • Product profiles, for example the ease of use of medication, instrument specifications Clinical development plans, for example by • designing and participating in trials • Publication of trial results • Regulatory filing • Development of health outcome studies • Disease awareness plans and product information • Education and awareness programmes • Treatment guidelines.

We also obtain feedback from customer groups through our medical liaisons and clinical research associates, advisory boards, and education and awareness programmes we are involved in.

We carry out comprehensive market research and analysis, often at a divisional or local level, to help us meet specific market needs. Each country organi­ sation is responsible for managing its relationship with its customers and sharing relevant information within the Group. We have a range of initiatives to enable this such as UNITE a company-wide database

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providing instant reports and information based on historical information, customer feedback and market analysis, to aid our planning.

Customer satisfaction is particularly important in consumer businesses. Patients with diseases such as diabetes, who use our products daily, tend to give regular feedback, which is pivotal to future product development. We also use detailed market research and focus groups to develop products and services that simplify daily diabetes management.

Half our Diagnostics employees work in customer service and support. We also encourage employees with little or no contact with customers to spend time learning about their needs. For example, Roche Diagnostics in Rotkreuz, Switzerland, has a customer orientation programme during which technical specialists spend nine months attending workshops, visiting laboratories and hospitals, and evaluating what they have learned before presenting their findings to management. They worked on projects including an online survey to help improve the way healthcare providers cope with methicillin-resistant Staphylococcus aureus — a major problem in hospitals.

Pandemic preparedness In 2009 the World Health Organization (WHO) declared a global pandemic of H1N1 influenza. Information from the WHO and the US Center for Disease Control and Prevention (CDC) indicated that Tamiflu was one of only two approved antivirals with activity against the novel strain. These events triggered Roche to implement its pandemic plan, which had been in development since 2004, with a focus on increasing Tamiflu production and distribution to meet increased demand, and ensure low-income countries had access to the drug. Our policies for the prioritisation of drug supply were in accordance with Preparing for the Next Influenza Pandemic — Roles and Responsibilities of Roche and Other Stakeholders, published in May 2008.

Tamiflu stockpiles | We have worked with the WHO and governments to build stockpiles of Tamiflu and

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help prepare for a flu pandemic. In 2005 we donated three million treatment courses for the WHO’s Rapid Response stockpile. We stored the stockpile until 2009, when the WHO distributed it to 72 of the world’s neediest countries. In 2006 we donated and shipped an additional two million treatment courses for the WHO’s Regional stockpile, which has also been distributed to countries in need.

In May 2009 we agreed to donate a further five million courses to replenish both stockpiles. We also agreed to establish a stockpile of 650,000 treatment courses of pediatric capsules, which we provide along with instructions for mixing the contents with food, for children unable to swallow them whole.

This brings the total number of treatment courses donated to around 11 million.

Since 2005 we have been providing governments Tamiflu at substantially reduced prices to assist their pandemic preparedness. However, we recognised that many developing countries were unable to create an adequate stockpile even at reduced prices. In July 2009 we launched the Tamiflu Reserves Programme to increase access in these countries. We produce and store Tamiflu for specified developing countries at a significantly reduced price, and spread the cost over a number of years. We will ship the stockpile if the WHO announces a flu pandemic, or when a government requests it to deal with a national outbreak.

To further increase availability, we have licensed companies in China and India to manufacture generic oseltamivir. We have also supported the efforts of a South African manufacturer by giving them access to the knowledge and skills needed to produce oseltamivir. They can now produce the drug freely as we do not enforce patents in sub-Saharan Africa.

Roche Diagnostics produced a polymerase chain reaction (PCR) based test for the H1N1 strain of the flu virus using our LightCycler System, within weeks of the virus being identified. In November 2009 the US Food and Drug Administration granted Emergency Use Authorisation of this RealTime Ready Influenza

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A/H1N1 test. It allows rapid and accurate identification of patients infected with the virus so appropriate patient management can start as early as possible.

Emerging data underscore the important role the drug played in reducing the impact of this most recent flu pandemic. For example, a recent study by Jain et al from the US Centre for Disease Control, published in the New England Journal of Medicine, reported on the clinical outcome of patients hospitalised with H1N1 influenza in 2009. The study showed that antiviral drugs were the only treatment that made a statistically significant difference in helping patients to recover, and that oseltamivir was the antiviral taken in around 90% of cases.

Public policy The private sector has a crucial and legitimate role to play in developing public policy. We share our expertise with policymakers to help develop effective laws, regulations and policies relating to public health, as well as more general areas affecting our business, such as tax policy. Our good practice guidelines for working with government officials guide our employees on doing so in an appropriate and professional manner.

Much of our public policy work takes place through our membership of industry bodies such as the European Federation of Pharmaceutical Industries and Associations (EFPIA), the European Diagnostics Manufacturers Association (EDMA) and the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), as well as their national members. We also meet directly with policymakers such as governments, public health organisations, think tanks and academics.

Our major public policy work in 2009 included: • Working with the World Business Council for Sustainable Development, European Roundtable of Industrialists and Prince of Wales Corporate Leaders Group on Climate Change on policy statements ahead of the Copenhagen Climate Conference in December

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• Showing Members of the European Parliament

•

•

around our animal facility in Basel during the development of the animal research directive, to demonstrate our welfare standards and the importance of animal research in healthcare Co-organising a dinner debate on animal research in the European Parliament with the European Platform for Patient Organisations, Science and Industry (EPPOSI) Explaining our position on proposed legislation covering pharmacovigilance, information to patients and counterfeit medicines to Members of the European Parliament.

Combating counterfeits | Counterfeit pharmaceutical and diagnostic products are illegal and a serious global public health problem. They endanger patients, undermine confidence in healthcare systems and companies, infringe intellectual property rights and waste valuable healthcare budgets.

We continuously monitor and improve product security and use technology to quickly identify counterfeits.

We take part in national and international industry and governmental efforts to strengthen the law, improve enforcement, train local officials and educate the public.

In 2009 we updated our position on counterfeiting, which is available on our website. We are taking part in an EFPIA pilot project in Sweden of a tracking system which traces drugs back to their source, improving patient safety. We apply a unique barcode to each pack of medicine produced, which pharmacists scan when dispensing the medicine to check it is authentic. We continue to provide input, through EFPIA, into the proposed EU legislation on counterfeiting.

Generic and biosimilar products | The patent periods for some innovative biological products such as proteins and antibodies are expiring, and products claiming to be similar are appearing on the market.

While it is relatively easy to copy chemical drugs, biological products have complex molecular structures

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and are obtained from living systems using advanced processes that are very difficult to reproduce. More testing is needed to demonstrate the similarity, safety and efficacy of follow-on products compared with the original.

We believe biosimilars should be subject to welldefined and transparent regulations that cover development, approval and post-authorisation procedures, based on those for the original products.

In 2009 we worked with regulatory authorities and industry bodies, particularly the International Federation of Pharmaceutical Manufacturers and Associations, to ensure policymakers fully understand biosimilar science. This work will support the creation of appropriate policies regarding future biosimilar monoclonal antibodies and the naming of biopharmaceuticals. Roche has also made scientific and medical presentations on biosimilars to regulators, scientists and other key audiences, and contributed to scientific journals.

Political contributions | Roche does not financially support individual politicians anywhere. US employees can make personal contributions through the Hoffmann-La Roche Good Government Committee (GGC), a voluntary political action committee, or participate in the Roche Action Programme.

Integrity and compliance The Roche Group Code of Conduct guides our employees’ business behaviour.

In December 2009 we launched the Roche Group SpeakUp telephone line and web service for employees to raise concerns about compliance with the Code of Conduct, anonymously if preferred.

A third-party organisation operates SpeakUp and PricewaterhouseCoopers has provided assurance that the system protects employees’ identities.

In 2009, 141 business ethics incidents were reported to the Chief Compliance Officer. We investigated them all and took corrective actions where necessary with

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73 employment contracts being terminated as a result of unethical behaviour.

We launched several initiatives to stimulate the sharing of best practices among Roche’s 110 local compliance officers, including a Compliance Officers’ Network, a series of regional compliance meetings and a dedicated intranet site. The compliance officers help line managers to control risks locally and meet the requirements of our Group Code of Conduct.

We also updated our performance management system to ensure we assess employees not just on whether they achieve their objectives, but also on how they achieve them.

Finally, we set up an Export Compliance Council to ensure our manufacturing and distribution sites meet the complex legal requirements for selling and exporting our products.

Risk and crisis management Our Risk Management Charter defines our risk management approach and responsibilities, and is available on our website along with a full list of risks to our business. We include significant social, environmental and ethical risks identified in the Group risk management process.

Responsible marketing There are strict regulations and industry guidelines on the sale and marketing of medicines and diagnostics, to make sure they are prescribed, administered and used correctly, and that patients understand the benefits and risks of taking them.

Healthcare professionals need to be able to select the best treatment option for their patients. We provide scientific and clinically relevant information that enables them to prescribe or use our products in circumstances which deliver the greatest medical benefit to the patient. A list of the external guidelines and codes of practice we follow when marketing our products is available on our website.

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In 2009 we introduced a sustainability risk management process and targets for our marketing agencies.

We also introduced a new standard operating pro­ cedure and related training to strengthen compliance with marketing codes in our pharmaceutical and diagnostics businesses.

We do not sell over-the-counter medicines and so do not advertise directly to consumers in the majority of our markets. In the US, where it is legal to advertise prescription medicines, we have detailed policies in place to ensure this is done legally and ethically.

We send all television advertising campaigns to the Food and Drug Administration for approval before broadcast.

We decided to end our membership of the Pharmaceutical Research and Manufacturers Association (PhRMA) in the United States and instead join the Biotechnology Industry Organization (BIO), of which Genentech was already a member.

Sustainable supply chain Roche spent around 18 billion Swiss francs on products and services in 2009. These range from raw materials and active pharmaceutical ingredients to equipment, laboratory and office supplies, and services like consultancy, travel and marketing. We must ensure these suppliers meet the necessary social and environmental standards to secure reliable supplies and enable the sustainable growth of our company.

Our approach is to: • Raise awareness with our supply officers • Raise awareness with suppliers • Help suppliers improve their standards • Develop joint initiatives to increase their performance.

We endorse the Pharmaceutical Industry Principles (PSCI Principles) which require suppliers to implement Responsible Supply Chain Management in the areas of ethics, safety, health and environment (SHE), social responsibility, management systems, innovation and economic sustainability, and are committed to

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integrating these Principles into our business. In 2009 we developed a new Supplier Code of Conduct, which includes the PSCI Principles, and now require all our suppliers to sign our Code of Conduct.

Our Pharmaceuticals and Diagnostics Divisions audit business-critical suppliers and assess new suppliers to identify and correct problems, using external and internal auditors. We share our expertise and provide training to help suppliers implement any required improvements. Internal auditors carry out follow-up inspections to ensure suppliers have made the necessary changes. In 2009 we audited social and safety, health and environmental standards at 40 existing suppliers and carried out follow-up audits at five. We rejected or ceased trading with one supplier that we could not help to improve. The main area for improvement our audits flagged up was industrial hygiene.

We are in the process of extending our sustainable procurement activities to suppliers of non-production materials and services.

We have established a financial risk management process in procurement to identify suppliers at risk of bankruptcy and to mitigate those risks. We continued to apply our supply chain risk management process to all suppliers of key raw materials, drug substances and drug products. We also worked with suppliers of materials for key Roche drug products to ensure they have business continuity plans for pandemic risk.

Research practices Ethical concerns sometimes arise as we push scientific boundaries and explore new technologies to develop innovative new therapies and diagnostics. We must explore and carefully manage these concerns to ensure the opportunities presented are not lost.

Ethics in R & D | Our global position on clinical research commits us to high ethical standards and clarifies our position on specific areas of concern.

We updated this position in 2009 to include straightforward answers to frequently asked questions about

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clinical research, such as what the different trial phases are and what the end of a trial means for the patients taking part.

As part of our clinical trials programme, we store biological material such as tissue, organs, blood and other bodily fluids in human specimen repositories, or biobanks. These are invaluable for learning more about disease and exploring possible treatments.

They also contain sensitive information about the person who provided the sample. We are dedicated to protecting donors’ privacy and ensuring they are fully informed about how their sample and data will be used before they agree to take part.

We have a clear procedure for resolving ethical dilemmas employees encounter in their work. If they cannot resolve the issue within their team, employees can contact our Global Ethics Liaison Office, which will consult peers and internal experts to find a solution. An internal committee handles any remaining concerns, and our independent Clinical Research Ethics Advisory Group (CREAG) provides counsel on the toughest challenges. We also provide regular online ethics training for employees. In 2009 the Global Ethics Liaison Office received 21 queries. All were resolved without escalation.

The CREAG meets annually to review concerns raised with the Global Ethics Liaison Office and discuss other relevant topics. In 2009 we updated the CREAG on recent queries handled by the Global Ethics Liaison Office, as well as on the status of the employee ethics education programmes. The CREAG also reviewed the latest revisions to the Declaration of Helsinki, a statement of ethical principles for medical research involving human subjects released by the World Medical Association.

Another independent panel, the Science and Ethics Advisory Group (SEAG), advises and guides us on genetics, genomics and proteomics. In 2009 the SEAG advised on issues including the use and storage of human biological materials in specific research projects. We expanded the SEAG’s advisory

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Breakdown of animals used in research |

Mice

86.6%

Rats

11.4%

Guinea pigs

0.33%

Hamsters

0.17%

Gerbils

0.41%

Fish

0.18%

Frogs

0.02%

Dogs

0.14%

Rabbits

0.53%

Primates

0.15%

Other

0.09%

in 2009

functions, with their agreement, to cover all innovative technologies such as nanotechnology and stem-cell research.

Animal welfare | We recognise and take seriously public concern about animal research. However, we could not develop life-saving medicines such as cancer drugs without it. While we work hard to find and use alternative methods, the limitations of those methods mean we still need to test new drugs and technologies on animals for safety and legal reasons.

In 2009 we used a total of 478,252 animals in our research, of which around 98% were mice and rats.

We are committed to the 3Rs concept of replacing animal tests where possible, reducing the number of animals we use, and refining existing scientific practices, animal welfare and husbandry. All employees and contractors who perform animal testing for us must comply with applicable laws and meet or exceed industry standards.

We continued our 3Rs Award for Innovation and Continual Improvement in Animal Welfare within Roche in 2009. Fifteen teams of scientists and animal care specialists from our research sites entered for awards in two categories.

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In the scientific category, first place went to a team which found a new in vitro test for detecting toxic compounds before testing new drugs on animals. Our diagnostics business developed the test, which is now available for pharmaceutical preclinical research. The winning project in the lab care and animal management category gradually rehabilitated monkeys that had been housed individually back into larger groups, increasing their social interaction and improving their wellbeing. We will implement these and other projects into our operations wherever possible, and run the 3Rs Award again in 2011.

In 2009 we created a new joint science and technology laboratory in Basel between the Pharmaceuticals and Diagnostics Divisions aimed at investigating organ toxicities of drugs. Using an innovative cell analyser system, xCELLigence, researchers can test whether pharmacologically active substances are likely to prove toxic to organs such as the heart and liver, by continuous, real-time viewing of the cells reaction to the molecule. This can be performed in the early preclinical stage of research, making many animal studies redundant.

We also established an internal Animal Welfare Ethics Committee to examine all studies in non-human primates before regulatory approval, and to advise employees working with animals. This committee will become fully operational in 2010.

Innovation and new technologies | Evolving technologies such as nanotechnology, stem-cell research and systems biology have many potential benefits in pharmaceuticals and diagnostics. These advantages must be carefully balanced with the ethical dilemmas and potential risks posed, and we assess these with great scrutiny before entering new fields.

Nanotechnology is the manipulation of materials on a scale 80,000 times smaller than the diameter of a human hair. It has potential in many areas, particularly drug delivery, regenerative medicine and small-scale, portable diagnostics. However, many questions remain about the effects nanotechnology may have on

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people and the environment. The risks and benefits have to be carefully evaluated before nanotechnology is used in medical products. We believe that existing safety tests and regulations provide an appropriate framework for doing so.

• Lobby through EFPIA on the proposed EU

Stem cells and their applications offer an enormous potential for the treatment and relief of chronic pain and even for the cure of diseases, extending and enhancing the quality of life. However, the research also raises ethical questions, because some people believe embryonic stem cells are humans with a right to life and should not be used in research or treatments.

•

Roche is keenly aware of the tremendous potential of this resource for basic science and future healthcare applications. We have, therefore, entered into research collaborations. For example, we work with Stem Cells 4 Safer Medicines (SC4SM) in the UK and with Cellular Dynamics International Inc in the US. Roche began stem-cell research and its related application as a discovery tool and we plan to begin research to use stem cells as a potential therapeutic modality. Roche also plans to develop expertise to become technically enabled in this research area and to conduct research on human embryonic stem cells and their use in drug discovery.

legislation on counterfeit medicinal products

• Establish a 3Rs database for sharing best practices •

in animal testing within Roche Launch Roche’s Ethics Committee on animal welfare Commence audit of suppliers in indirect spend.

More on the web • Responsible marketing, risk management and compliance: • • • • •

www.roche.com/business_integrity_and_responsible_marketing_ www.roche.com/risk_management_and_compliance Pandemic influenza and Tamiflu information: www.roche.com/roche-influenza www.pandemictoolkit.com The Pharmaceutical Industry Principles for Responsible Supply Chain Management: http://pharmaceuticalsupplychain.org Patents, counterfeiting and biosimilars: www.roche.com/medical_value_patents_and_pricing www.roche.com/patents Innovation, new products and technologies: www.roche.com/csr_research_and_development www.roche.com/innovation_and_technologies All position papers: www.roche.com/policies_guidelines_and_positions

In 2009 we held a stem-cell research workshop in partnership with Cambridge University in the UK. Attendees included 70 Roche specialists and 17 academic experts. They discussed stem cell science and possible applications, as well as steps for industry to take to maximise the medical and business opportunities presented.

2010 objectives

• Implement the Roche Group SpeakUp Line • Launch the revised Roche Group Code of Conduct •

and update the Behaviour in Business e-learning programme Roll out new supplier code of conduct and include compliance with this in our existing supplier audit programme

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Patients

Patients in all aspects of healthcare benefit from our products and services. Our differentiated medicines and diagnostics come from diverse approaches to research and development. We constantly pursue scientific excellence, which helps us tailor our products and services in a way that ensures Personalised Healthcare. This means patients can lead longer and better lives because they receive treatments that more effectively prevent and cure disease, alleviate symptoms and hasten recovery.

The majority of healthcare payers recognise the medical and economic value of our products. For example, while cancer drugs such as Herceptin and Xeloda may seem costly, not only do they extend the lives of patients with terminal illness and prevent disease recurrence in patients with earlier stage cancer, they can also ease pressure on healthcare budgets by reducing or preventing hospital visits, surgery and the need for palliative care. In many cases, they help patients return to work more quickly.

We can amplify this contribution to society by: Helping to improve access to our products Ensuring they provide value for money Providing factual information on our products Listening and responding to customers’ views.

In 2009 we published a new position on assessing the value of our products and services, which contains a series of guiding principles for carrying out such assessments. We employ experienced health economists who work with health authorities to understand and provide robust evidence regarding the economic and health benefits of our products and services within the relevant regional and local healthcare systems.

• • • •

The value of medicines and diagnostics Different people experience disease and respond to treatment in different ways. Our approach of personalised healthcare (PHC) takes this into account and fits treatment to different groups of patients.

We use our diagnostic expertise to deepen our understanding of disease, how treatments work and how different patients respond. This helps us develop better, safer drugs and identify the patients who will benefit most, improving clinical outcomes and increasing cost effectiveness. In 2009 we published a new position on personalised healthcare to describe our approach in more detail.

Healthcare payers have to make difficult decisions about granting access to, or providing reimbursement for, healthcare products and services, based on cost effectiveness and budget constraints as well as medical need and clinical impact. These decisions have a profound effect on patients and their families, and can influence where research-based companies like Roche focus their future investment. Objective, consistent and open processes are essential for assessing the total value of medical products, to individual patients and to society as a whole, throughout their lifecycle, so that the decisions made are fair.

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We also engage with healthcare payers throughout a product’s lifecycle. We provide guidance on assessing the value of our products and services (Health Technology Assessment — HTA) prior to them deciding reimbursement and funding conditions.

Global access to healthcare Patients can access our products through doctors, hospitals, laboratories and pharmacies in roughly 180 countries. While we sell the majority of our products in developed countries with advanced healthcare systems, around a third of the world’s population lacks adequate access to healthcare. The World Health Organization (WHO) lists many of our products as essential medicines.

Our industry has an important role to play in parts of the world where healthcare standards and awareness of the causes, prevention and treatment of disease are lower. But there are many other systemic problems contributing to health inequalities, and we cannot tackle these alone. We work with governments, non-governmental organisations (NGOs), patient groups and healthcare providers to tackle

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health inequalities and increase access to our products. We tailor our approach in different regions to cater for their specific needs.

Access for those most in need | The world’s least developed countries (LDCs) are hardest hit by disease and have the poorest healthcare systems to deal with this burden. There are too few hospitals, laboratories and healthcare professionals to meet demand.

We aim to increase access to healthcare in poor countries in sustainable ways that include: • Fair patent and pricing policies • R & D into diseases with unmet medical needs • Partnerships with governments, NGOs and others • Education, training and knowledge-transfer.

Our approach is to jointly develop access programmes that raise awareness, educate and train, and assist in developing healthcare infrastructure. This collaborative approach ensures needs are met, while future business opportunities for both sides are enhanced through the increased capability of institutions and organisations in developing countries.

The illustration shows the circumstances under which we do not file or enforce any patents. It also illustrates our no-profit pricing policy in action.

In 2009 we completed our technology transfer ini­ tiative (TTI), through which we shared the knowledge required to produce our HIV treatment saquinavir with local manufacturers, free of charge. We worked with all 41 interested manufacturers and reached agreement with 13 companies in the LDCs, which are now free to produce saquinavir or use this knowledge to produce other products. We also held three African Good Manufacturing Practice (GMP) training seminars to improve locally produced essential medicines.

We also continued our partnership with the Clinton Foundation’s HIV/AIDS initiative (CHAI). Together we have established and trained seven labs for HIV testing, developed a novel solution for diagnosing and monitoring HIV in infants, and devised a text message

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service to speed up the delivery of HIV test results in remote areas.

Cancer kills more people in developing countries each year than AIDS, malaria and tuberculosis combined.

More than half of all cancer cases are in the developing world, but only about 5% of global cancer resources are spent there. International healthcare programmes focus on infectious diseases and there is very little oncology investment, infrastructure or expertise. As a leading provider of cancer therapies, we have an important role to play in tackling this badly neglected problem.

In 2009 we evaluated new partnerships to improve training in cancer care for healthcare workers in subSaharan Africa. We will focus on sharing our expertise rather than simply cash or drug donations, as we believe that building local capabilities will make a bigger difference in the long term. Training will take place locally to encourage healthcare professionals to stay in their home country rather than leaving for opportunities abroad.

We also joined the Changing Diabetes in Children programme in 2009. This is a public/private partnership between Novo Nordisk, the World Diabetes Foundation and governments in African countries.

The project aims to make life better for the growing number of diabetes patients in Africa, where the standard of care is often poor. The objective is to produce care guidelines, educate healthcare workers and ensure all children entering the programme are registered and monitored so their condition can be controlled. The first phase will target Cameroon, the Democratic Republic of Congo, Guinea-Conakry, Tanzania and Uganda.

In 2008 we gave the Institute for OneWorld Health access to our chemical compound library so it could search for new medicines to treat childhood diarrhea.

OneWorld Health completed the first screening in 2009, and identified 40 compounds to investigate as possible new treatments.

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68% of people living with HIV covered by our no profit prices for antiretroviral medicines Global access to healthcare

Pricing and patents in least-developed countries

– No patents filed or enforced on any medicines – Two antiretroviral HIV medicines sold at no profit, covering 68% of HIV patients – Valcyte sold at reduced prices to NGOs treating AIDS-related cytomegalovirus

Pricing and patents in other sub-Saharan African countries

– No patents filed or enforced on antiretroviral HIV medicines – Two antiretroviral HIV medicines sold at no profit – Valcyte sold at reduced prices to NGOs treating AIDS-related cytomegalovirus

Pricing for low and lower- to middle-income economies

– Two antiretroviral HIV medicines sold at reduced profit

Planning for pandemic influenza

– – – –

Access programmes in wealthy nations

– Roche Patient Assistance Program and Genentech Access Solutions provide advice and financial support for uninsured or underinsured patients – Over 40,000 patients benefitted from these patient assistance programmes in 2009

Tackling HIV/AIDS in the developing world

– AIDS technology transfer agreements in Bangladesh, Ethiopia, Kenya, South Africa, Tanzania and Zimbabwe – Employee secondments in Ethiopia, Niger, Swaziland and Togo – UNICEF & European Coalition of Positive People AIDS Orphan Programmes in Malawi – Amplicare supplies HIV viral load tests in sub-Saharan Africa, South America and the least-developed countries – Clinton Foundation HIV/AIDS initiative (CHAI) in sub-Saharan Africa

Broader healthcare partnerships in the developing world

– Phelophepa Healthcare Train in rural South Africa – New oncology sustainability initiative in sub-Saharan Africa in 2010 – Changing Diabetes in Children with Novo Nordisk and the World Diabetes Foundation in Cameroon, the Democratic Republic of Congo, Guinea-Conakry, Tanzania and Uganda – Institute for OneWorld Health on infectious diseases – Google.org on infectious diseases in Kenya

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Tamiflu donated to World Health Organization stockpiles for countries most in need Tamiflu sold at reduced prices to developing countries Tamiflu Reserves Programme creates stockpiles for developing countries Tamiflu sub-licensing agreements in China and India and technology transfer agreement in South Africa

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In July 2009 we teamed up with Google.org on an initiative to help predict and prevent emerging infectious diseases in East Africa. Roche donated a genome sequencing system to be installed in the International Livestock Research Institute laboratory in Nairobi, Kenya. The initiative will begin by investigating Rift Valley Fever, a disease spread by mosquitoes which is potentially lethal to people and livestock.

We produced our first Access to Medicines and Diagnostics report in 2009. This contains more details of all our policies and programmes to increase access to our products and is available on our website.

Access in emerging markets | Healthcare in middleincome countries is improving and presents a substantial opportunity for Roche. However, each country’s healthcare system is at a different stage of development and has its own specific needs. We work in partnership with governments in these countries to help establish processes and clinical trial programmes and improve education.

Our dedicated Medical Affairs Group develops specific programmes for individual emerging markets, where many patients cannot afford the long-term treatment necessary for diseases such as cancer, hepatitis C and rheumatoid arthritis. In China, for example, we offer cost-sharing programmes for our oncology drugs to ensure access to the patients who will benefit most. In South Korea, our reduced prices for cancer drugs cover the entire population, while in Egypt, which has one of the highest rates of hepatitis C infection in the world, we provide Pegasys at a special low price for public sector patients.

We also supply our products to private payers in emerging markets, and work with insurance and re-insurance companies in China and Russia to expand private insurance coverage and increase access to our medicines. We continue to supply two HIV medicines at reduced prices in the low and lower-middle income countries defined by the World Bank.

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Access in the developed world | We work closely with payers in all countries to demonstrate the medical and economic value of our products and we establish prices that enable access. However, many people in developed countries cannot afford treatment or the insurance to pay for it. In the US, where as yet there is no universal healthcare system, we provide free drugs to those in need through both the Roche Patient Assistance Program (PAP) and the Genentech Access to Care Foundation (GATCF). In 2009, 22,200 patients benefited from the PAP and 18,500 patients received free treatment through GATCF. We also support industry efforts to raise awareness of assistance programs via the Partnership for Prescription Assistance.

In 2010, following the merger of Roche and Genentech, GATCF will assume responsibility for the Roche PAP patients to create one of the five largest charitable foundations in the US. GATCF is part of Genentech’s broader programme to help patients gain access to prescribed therapies.

The Genentech Access Solutions department comprises nearly 400 employees who help patients navigate the complex US reimbursement landscape.

For insured patients, Genentech Access Solutions clarifies benefits coverage and reimbursement requirements, helping find ways to assist in covering patient expenses where possible. Uninsured patients or patients who qualify for assistance can obtain free medicine from GATCF. In 2009 the service advised 82,000 people about coverage and reimbursement issues and GATCF provided 18,500 patients with free treatment worth a total of 295 million US dollars.

In Japan, Chugai established the Academy for Advanced Oncology (CHAAO) in 2009, to help bring standards of cancer research and treatment up to the same standards as those in Europe and North America.

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Patients and facilities benefiting from clinical trials (excludes Genentech)

Impact of our access programmes 2009

2008

% of HIV-infected patients living in countries eligible for no-profit medicines

Number of clinical trials 68%

68%

involved

living in countries eligible

Number of patients in phase 83%

83%

40,000+

38,000+

2008

1,493

1,535

27,457

26,652

269,895

235,420

Number of healthcare centres

% of HIV-infected patients for reduced-price medicines

2009

I–IV clinical trials

Patients benefiting from USA patient assistance programmes

Clinical trials Clinical trials are essential to demonstrate the safety and efficacy of new drugs. They also provide educational, financial and medical support for participating hospitals and access to the latest treatments for cancer, arthritis and other diseases. Patients taking part in trials receive free access to the most advanced therapies during the trial and when there are no valid therapeutic alternatives this continues until the drug is available for sale or on prescription. We do not perform clinical trials in countries where we do not plan to market the drug.

People seeking new clinical trials to take part in or wishing to learn from the results of completed trials can access this information at www.roche-trials.com.

As of 31 December 2009 the site contained details of 649 pharmaceutical protocols, 28 diagnostic protocols and 283 trial results. These studies cover more than 95 conditions including Alzheimer’s disease, asthma, around 33 cancers, cardiovascular disease, depression, diabetes, hepatitis, HIV/AIDS, influenza and obesity. The website had more than 430,000 page visits in 2009 representing more than 65,000 visitors. Details of our clinical trials are also available through the International Federation of Pharmaceu­ tical Manufacturers and Associations (IFPMA) clinical trials portal at www.ifpma.org/clinicaltrials, and the US National Institutes of Health’s global registry at www.clinicaltrials.gov. We publish our clinical trial data to ensure that all lessons from these trials are made accessible to the wider community. We also

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present both research and clinical findings at medical and scientific meetings and engage with key leaders in each field.

We collect the information gained through clinical trials and post-marketing surveillance and use this for a continuous assessment of the benefits and risks of a product in development or an established medicine. We also use it to better plan new clinical development programmes. We provide this information to regulatory authorities as required.

We apply strict data protection principles to all personal medical data collected during clinical trials, in line with our directive on the protection of personal data. These principles apply equally to data about our customers, suppliers and employees.

Patient safety All medicines may cause adverse effects (side effects) in some patients. Our priority is to make sure the benefits of taking our products in clinical development and our medicines outweigh any identified or expected safety risk. We have robust processes operating worldwide to understand our medicines and their adverse events and to minimise their likelihood. Medicines are regularly analysed against various reference databases to help us detect potential safety signals.

All our products in clinical development have an individual safety management plan and all our medicines have a risk management plan reviewed and approved by major health authorities.

Continuous monitoring and working with the health authorities enable regular updates to prescription

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instructions (labelling and product information), including emerging safety information, contraindication and special precautions of use. When necessary, letters are sent to physicians and healthcare providers allowing them to adjust their medical practice.

Diagnostics products may give erroneous results, caused by a product performance or user handling issue. This could eventually lead to an incorrect therapy for a patient. During the development of diagnostic products, extensive testing is performed using patient samples under various realistic conditions to ensure optimal performance of the final product.

We investigate all reported adverse events to ascertain if they are related to our products. If there is a link, we re-evaluate whether the benefits of the medicine or diagnostic product still outweigh the risks.

We also have robust procedures in place to promptly inform patients, physicians, healthcare providers and regulators of any new product safety information.

We have a robust process to ensure that products can be recalled rapidly and withdrawn from circulation if unanticipated issues with their quality arise. In 2009 there were no recalls involving the public.

Patient advocacy We share with patient groups an interest in helping patients understand and manage their disease and gain access to the information and treatment they need.

While their aims vary, each patient group interacts with many patients and carers, understands their needs and priorities and knows how to provide emotional support and practical advice. We describe our approach to working with patient groups in our position statement and guidelines for working with patient groups, which are available on our website.

we support. We publicly list patient groups we give non-financial support to if the support is significant or meaningful, as guided by European Federation of Pharmaceutical EFPIA Industries and Associations.

Examples of patient advocacy we supported in 2009 include the World Hepatitis Alliance’s work to raise awareness of viral hepatitis and promote action to improve patient care. We continued to support the European Patients’ Rights Day organised by Active Citizenship each year. In 2009, 34 patient groups in 24 European countries celebrated the third Patients’ Rights Day. Education and awareness Our affiliates often get involved in initiatives to raise awareness of disease. For example, Roche Turkey held a one-day cycling event at a shopping mall in Istanbul, in partnership with the Turkish Bicycle Federation and the Ministry of Health’s cancer control department. Roche made a donation to the patient organisation, Hand-in-Hand Against Cancer, on behalf of each person taking part. Demonstrations on prosthetic breasts helped train women in selfexamination.

In Brazil, 12 million people have diabetes but 44% do not realise it. Roche Diabetes Care challenged fashion students to design a practical and fashionable accessory for carrying Accu-Chek blood sugar tests and other diabetes care items, to raise awareness of the disease among teenagers and young adults.

2010 goals • Initiate Roche oncology sustainability initiative in sub-Saharan Africa • Expand partnership with Albert Einstein College of Medicine in Ethiopia to include oncology training • Host, in collaboration with Novo Nordisk and the World Diabetes Foundation (WDF), a Leadership Forum in Africa to address the Diabetes epidemic.

Transparency is fundamental to successful partnerships with patient groups. In 2009 we listed all the patient groups we support financially on our website, by country and with a short description of the activity

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More on the web • Personalised healthcare: www.roche.com/phc_in_r_d

• Roche position statements on personalised healthcare, access

• • • •

•

to medicines and diagnostics, pricing, neglected diseases, and working with patient groups: www.roche.com/policies_guidelines_and_positions Access to medicines report www.roche.com/sust-access.pdf Programmes in LDCs: www.roche.com/programmes_in_least_developed_and_ developed_countries Programmes in developed countries: www.pparx.org www.GenentechAccessSolutions.com Roche trials and patient safety: www.roche-trials.com www.roche.com/clinical_trials www.roche.com/managing_medication_safety List of patient groups supported: www.roche.com/patient-groups

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People

For over a century, Roche has stood for innovation and entrepreneurship. Our history of achieving our business goals and excelling in science and innovation is a result of consistently employing the best people.

We succeed because of our people — people who are passionate about making a difference to patients’ lives; people who lead and drive change; people who live our corporate values — integrity, courage and passion. We have 81,507 employees behind our current success.

We keep our employees engaged and performing at the highest level by creating a working environment in which everyone feels valued and respected; where they can develop to their fullest potential and can make their own mark. Our progress in achieving this

is illustrated by our consistent ranking as an Employer of Choice (see the table below for a selection of our awards).

‘I truly believe that we’re in the golden age of disease research and drug discovery. It is now possible to tackle disease biology with the same rigour as basic biology. Because of this convergence of medicine and science, I can’t think of a better place to be than Genentech. The quality of the science here is on par with that of top academic institutions. It is exhilarating to experience the combination of scientific excellence with state-of-the-art resources, enormously talented colleagues and the culture of risk-taking we have here.’

Marc Tessier-Lavigne, Ph.D., Executive Vice President, Research, and Chief Scientific Officer

Employer of choice — Selected external awards (with rankings 1 to 3) Award

Roche site

Rank

Description

Science Magazine’s Top Employer

Genentech

1 st

Genentech won the Biopharmaceutical

San Francisco Business Times

Genentech

1 st

Industry prize for the seventh time Best Place to Work

The rank is based on employee responses to a questionnaire and includes companies in the Bay area with more than 1,501 employees

Total E-Quality Germany

Roche Germany

n.a.

Total E-Quality awarded for the second time for Roche’s successful and sustained equal opportunities commitment

Arizona Bioindustry Association

Ventana Medical

Bioscience Company of the Year

Systems/Roche

1 st

The award recognised Ventana’s development and growth

Tissue Diagnostics Best Places to Work Survey,

Roche Denmark

1 st

Best Pharma/Biotech Company

Roche was voted Best Pharma/Biotech Company in Denmark for the fourth consecutive year, and second amongst all sectors

Actualidad Económica

Roche Spain

1 st

Roche ranked 1 st in the Pharma Industry

Roche Switzerland

3 rd

Switzerland’s students voted Roche

Best Companies to Work For Trendence Top Employer

and 5 th overall the country’s third best employer in its Technology & Science edition

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Employees (FTE * ) by operating divisions

New Pharma Chugai

2009

2008

Variance

48,341

47,551

1.7%

6,632

6,590

0.6%

25,967

25,404

2.2%

Other

567

535

6.0%

Total

81,507

80,080

1.8%

Diagnostics

* full-time equivalent, FTE.

Employees by contract types 2009

2008

Variance

79,631

78,320

1.7%

1,876

1,760

6.6%

Headcount

82,428

80,400

2.5%

Full time (HC)

77,866

76,058

2.4%

Part time (HC)

4,562

4,342

5.1%

Regular (FTE) Temporary (FTE)

Engaged employees The global Listening to You survey, conducted in early 2009, aimed to measure the effectiveness of internal communications and employees’ attitudes to the company and their work. Over 30,000 employees responded.

Overall, 91% of respondents expressed satisfaction in their job and felt they were appropriately engaged

by Roche. The vast majority (89%) felt proud to work for Roche and would recommend the Group to others as a good place to work.

Nearly 90% said they have access to the information they need to do their job well. Employees felt well informed about our major products, business strategy and financial performance. We will carry out another survey in 2011.

Roche Employees worldwide Employees Variance 2008 | 2009

Europe | 35, 310 North America | 25, 412 Asia | 14,169 +2.1 % -1.6 %

+8.5 %

Africa | 795 Latin America | 4, 930

+6.4 %

Australia | 891

Today we employ some 81,500 employees, around 2% more than in 2008. All of them are driven by the same spirit and pursue the same goal: to create new and better ways to prevent, diagnose and treat new diseases.

+0.5 %

-1.2 %

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During the Roche-Genentech integration, we provided relevant information to employees quickly and transparently using an integration web portal and employee road shows. The electronic platform allowed us to communicate management decisions instantly and attracted, on average, 12,000 unique visitors per week between April and August — mainly from the US and Switzerland. We held road shows at all affected sites and used them to introduce new members of the management team. We filmed these events and posted the videos online. Together with key presentations, these videos provided direct input on strategic direction and other news stories. Pictures and personal stories from employees helped people from each company connect more easily.

A survey at Genentech showed that employees remain positive after the merger — despite having experienced uncertainty and loss as a result. Genentech employees remain proud of their culture and its positive impact on patients’ lives.

The survey also showed that Genentech’s focus on patients and commitment to science inspires and motivates employees. Almost all employees (93%) are committed to the success of the merged company, want to stay with the company for at least a year (91%), or want to stay at Genentech for a long time (86%).

Fostering diversity Our focus is to ensure diversity in our workforce.

An inclusive work environment allows us to leverage the potential of all employees irrespective of age, gender, ethnicity, disability, work style, experiences, family situation, or working needs.

certain candidates and to demonstrate progress towards government goals for women and minorities.

We sponsor and support a number of employee affinity groups, associations and networks. The GO & E — Genentech Out & Equal Group — aims to promote a workplace environment that embraces all employees regardless of their sexual orientation. AAIB — African Americans in Biotechnology — is dedicated to achieving a culturally diverse environment which improves the development of drugs to address the unmet medical needs of a more culturally diverse patient population.

The Integra project at Roche Spain also encourages greater understanding of disability among employees and aims to increase the number of hires with dis­ abilities. In Italy, collaboration with local institutions over the last two years has enabled us to recruit and onboard five additional disabled persons.

People from over 79 countries — from Australia, Uruguay to South Africa — work for Roche in Switzerland. In total more than 126 nationalities are represented worldwide at Roche.

Women account for nearly half (46%) of employees and 37% of managers globally. Women also make up more than 46% of the workforce in over 90 of our 140 affiliates. In 33, women account for more than 50% of management. Examples include Australia, where women account for 68% of employees and 58% of management, and Hungary with 81% and 75%, respectively.

Gender diversity 2009

We do not tolerate discrimination of any form, as stated in our worldwide employment policy. We have management training programmes and a wide range of initiatives at affiliate level to encourage and safeguard employee diversity. For example, our Nutley site in the US has a dedicated department to manage diversity. It sets annual plans to evaluate how employment decisions may adversely affect

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2008

2007

Women in total workforce

46%

46%

45%

Women in management

37%

37%

32%

28%

29%

—

9%

8%

7%

Women in senior management Women in executive management positions i.e. top 120

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Women In Leadership Network, Basel and Genentech Women Professionals both aim to provide a forum for women which recognises their unique strengths and talents and in which experiences can be shared and leveraged.

Encouraging innovation Roche is a global, innovation-led company. We have to balance the need for efficiency and consistency through standardisation with a competitive environment in which innovation thrives.

Innovation is driven by different and often conflicting approaches, ideas and experiences. While ensuring that our main functional processes are aligned across the Roche Group, including Genentech, we decided to keep the research and development laboratories (Genentech Research and Early Development — gRED) independent to ensure its interaction with external research institutions was not disrupted. gRED has its own budget, portfolio management and culture — all of which are fundamental to innovation. We created a parallel Pharma Research and Early Development organisation (pRED) comprising the various R & D centres outside Genentech to stimulate the different perspectives critical to successful innovation.

‘Genentech challenges our scientists to discover new biology and to translate these findings into novel medicines to help patients. Success requires a fearlessness and willingness to attack the most difficult scientific and clinical problems and not to be deterred by the trials and tribulations of scientific discovery and unknowns of medicine. I feel fortunate to have the opportunity to work alongside our research, development and clinical scientists to meet these challenges.’

Andrew C. Chan, MD, PhD, Senior Vice President, Immunology and Antibody Engineering

We recognise innovation among our employees through internal awards. These include prizes for improving animal welfare in our trials, implementing innovative informatics solutions and proposals that improve patients’ lives. The Roche Pharma CEO Awards recognise teams that have passionately pursued innovative solutions for patients, creatively improved the way we work and pushed science, marketing and operations to the next level. In 2009 more than 165 teams from every region, disease biology area and function participated in the programme. Winning teams included Roche employees at every stage in their careers — from young post-docs to senior researchers with decades of experience.

Employees FTE by function

Servicing

2009

2008

2007

13,408

12,292

12,215

16,395

15,381

14,262

28,682

28,426

28,107

18,894

18,518

18,580

Our Postdoc Fellowship programme awards our best scientists with grants to conduct exploratory research, which helps us reinforce our talent pipeline in R & D.

Manufacturing & Logistics Marketing & Distribution Research & Development General & Administration Total

4,128

5,463

5,440

81,507

80,080

78,604

‘Knowledge is an essential aspect in Roche that multiplies when it is shared and cleverly used. The key is to develop a participatory management style where teams share their ideas and develop different ways of doing things in a framework of mutual understanding. It is a privilege to work in a company that recognises the performance and potential of its talents regardless of their background and experiences even where these might not reflect the traditional route or the expected profile. Roche encourages its employees to rise to, and face professional challenges thus allowing them to grow and reach different positions.’

María Jesús Alsar, Onco-Hematology Director, Spain

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Attracting employees We work hard to keep our recognition as an employer of choice. This is critical to our ability to hire and retain outstanding people who are committed to our goal of improving people’s health and quality of life.

Roche’s strong and sustainable brand enables us to attract the right people. We have built a large and diverse pool of candidates, dedicated in-house recruitment teams and globally aligned recruitment processes, standards and technology. Our careers website expanded in 2009 to improve the local visibility of all available positions (including at Genentech).

The site had some two million unique visitors in 2009 and registered more than 388,400 spontaneous applications. We also continued to roll out Taleo, our global e-recruiting platform. Launched in 2005 in just three countries, Taleo is now available in over 62 countries worldwide.

We continued to deploy our global employer brand in 2009 — ‘Make your mark. Improve lives’ — to improve awareness of Roche as an employer of choice and to differentiate us from our competitors.

Hiring and retention | A large integration requires a sharp focus on retention. Our decision to maintain Genentech’s unique research operations was one measure to aid retention, accompanied by additional health benefits, outplacement services and cash payments. We have continued to attract top scientists and other high-profile talent since the deal was closed. Genentech hired 1,364 people in 2009, increasing its total workforce by 12% .

Staffing rates

Number of vacancies

2009

2008

11,268

13,911

New hires

8,192

9,169

Internal staffing rate

29.3%

34.5%

External staffing rate

70.6%

65.5%

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Turnover (regular employees) * 2009

Total Europe

7% 5.1%

Latin America

13.4%

North America

7.8%

Asia

7.2%

Australia

10.9%

Africa

18.3%

* Including non standard temporary contract ends.

Reasons for leaving 2009

Employer-related

40%

Employee-related

51%

Neutral*

9%

* Such as temporary contract ends, health issues and retirements.

Roche’s turnover shows a strong decreasing trend (–30%). This trend is confirmed particularly by the number of employees leaving of their own accord (from 58% in 2006 to 51% in 2009). Over 35% of our employees have been with Roche for more than ten years.

Developing employees Development is a priority for all employees in an innovation-driven organisation. We want employees to develop to their fullest potential and support them at every stage in doing so.

Performance management | Regular feedback and an open dialogue between employees and their managers is a critical activity for which we hold both managers and employees accountable. In 2009, 92% of our employees took part in performance management programmes and 43% in formal career development planning.

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Employee training

potential leaders (3.8% of total headcount), of which one third are women.

2009

2008

Total training spend (millions CHF)

146

139

1,794

1,734

2.16

2.40

26

29

429

335

Training spend per employee (CHF) Total number of training hours (million) Average training hours per employee Number of postdocs, students and interns * * excluding Genentech and Chugai.

Learning | Roche offers extensive support to em­ ployees for the development of functional, professional and leadership skills. Our major Diagnostics and European Pharma affiliates, accounting for 38% of the total Roche population, offered nearly 13,000 courses in 2009 through our common CHRIS platform. Over 28,000 training sessions (classroom and web) took place and we registered close to 552,000 bookings.

Succession and talent management | In an organisation characterised by change, leadership skills are increasingly important. During 2009 we ensured full coverage of our Global leadership programme portfolio, providing key programmes at every stage in the leadership development pipeline. In 2010 Roche’s Learning and Development department will create a common framework for leadership development, linking Global leadership programmes with existing local, regional and functional initiatives. This will give employees and managers access to a catalogue of leadership programmes.

High-potential leaders are people with the ability to take on critical senior roles in the short, mid or long term. Identifying and developing these employees ensures we have a robust and diverse pool of can­ didates for critical positions. We identify and confirm these individuals in talent assessments and reviews during the year. In 2009 we identified 3,119 high-

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Within the global leadership portfolio, we have programmes addressing each category of high-potential leaders — from those who will assume a Global leadership position in the long term to those who can succeed a key position holder in the short term.

In 2009 these programmes targeted the top 5% of employees and included: • Explorations — includes an assessment of leadership skills, feedback and coaching by senior leaders early in an employee’s career, to enable them to build focused development plans.

In 2009, 24 employees participated (7 women).

• Perspectives — a two-year programme in which we prepare early high-potential leaders for significant management responsibilities. They work in four different functions and regions. In 2009, 9 participants joined for the first time (4 women).

• Horizons — gives mid-term high-potential employees an accelerated global and cross-functional development experience in critical areas such as leadership, innovation, risk taking, customer orientation and change. In 2009, 48 employees participated (12 women).

• Reflections — provides an assessment of the most senior high-potential employees on their individual strengths, areas of improvement and potential based on the Roche Values & Leadership Competencies. In 2009, 21 candidates (3 women) took part.

At a time of significant organisational changes, we filled more than 30% of our open positions internally.

International Mobility | While some 7,865 vacancies (70% of the total) are filled by external candidates, we offer professional and personal development opportunities to our own employees through internal moves. This not only helps Roche retain key personnel, it enables us to leverage potential within the Group.

An increasing amount (over 12%) of this mobility goes across affiliate and national boundaries. Of our 495 expatriates and cross-boundary employees,

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26% are women, all of them representing 55 different nationalities.

To encourage mobility within the Group, in 2009 we introduced the Intercompany Transfer and Local Foreign Hire Policy. This facilitates the recruitment and relocation of foreign hires and of permanent crossborder moves within the Group. Local mobility initiatives such as our Local Plus policy in China help attract top talent to China, especially individuals who have international experience and want to return.

We have also revised our international assignees policy to improve the flexibility needed to address market trends, changing demographics and evolving business needs. This revision responds to the findings of a survey of 600 assignees and their partners. The revised policies will be rolled out in 2010.

Rewarding and recognising employees The total compensation package we offer makes a significant contribution to attracting, rewarding, recognising and retaining the right people.

Our total remuneration costs in 2009 amounted to 12 billion Swiss francs (an increase of 8.5% from 2008).

Our base pay packages reward individual performance, recognising both what was achieved and how it was done. Through variable pay, we incentivise employees who create new opportunities and strive for outstanding results. Variable pay is driven by individual and team objectives and by the Group, divisional and affiliate performance.

We want our employees to share in our success.

Through Roche Connect, employees in most countries can purchase Roche’s non-voting equity securities at a discount of up to 20%. In 2009, 16,604 employees in 42 countries — 37% of those eligible — participated in Roche Connect, 1% more than in 2008. We also award non-voting equity securities to managers, based on their performance, through the Roche Long Term Incentives Plan. A total of 3,480 managers took part in 2009, with 589 joining for the first time.

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We also reviewed compensation practices at Roche and Genentech, and moved 10,653 Genentech employees to Roche long-term incentives. This means that apart from Chugai employees, all long-term incentives in the Group are now on the same Roche Holdings securities. More changes to align Roche and Genentech compensation practices and the performance metrics used for incentives will come into effect in 2011.

Benefits | Through competitive benefits programmes we help to create an attractive workplace.

Over 97% of our affiliates offer extensive benefits plans.

Most go beyond government schemes and include health checks and free access to a wide range of medical services. We have also introduced programmes that encourage a healthy lifestyle through wellness programmes, health education, fitness centres, swimming pools and relaxation initiatives. We now have Tai-Chi classes at our Brazilian, Italian and Mexican affiliates and have incorporated it in workshops applied by our Lifecycle teams. We have been trialling power napping and are offering healthy food options at our headquarters in Basel. We continue to offer benefits to our retirees at several of our affiliates, such as Switzerland — including access to employee restaurants, sports and leisure activities and travel checks.

We have increased our focus on flexible working arrangements. After successful pilots at our Welwyn site in the UK, our Basel headquarters introduced a pilot to accommodate different working styles or family situations through home working and desk sharing. The pilot aimed to identify more attractive and flexible working arrangements for office workers, as well as testing efficient and sustainable use of office space and infrastructure.

Genentech introduced an online tool allowing employees to assess whether their tasks are eligible for flexible work arrangements.

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We also aimed to increase the consistency of our benefits programmes around the organisation. Our goal is to align benefit programmes within countries so we can offer attractive benefits to all our em­ ployees, regardless of affiliate or division, consistently and efficiently.

In 2009 we started the harmonisation of the benefit plans of our North American affiliates — coinciding with the Genentech integration. We will launch the new programme in October 2010, and it will come into effect on 1 January 2011. Similar benefit-harmonisation programmes are ongoing in Switzerland, Spain, France and the United Kingdom.

As a result of the financial crisis and the fall in global equity markets, some of our pension funds around the world faced challenges maintaining a healthy funding position. Where underfunding has arisen, Roche has taken steps to develop appropriate strategies in accordance with the local statutory regulations and practices, and in consultation with employee representatives, including additional cash injections and recovery plans. Some of our major pension funds have removed early retirement incentives and have introduced more flexible retirement models to anticipate the impact of an ageing workforce.

Human rights and labour relations Roche has a comprehensive employment policy, which covers human rights. The Group Compliance Officer monitors this policy and serves as a contact for all employees.

Roche respects the right of employees to freedom of association and collective bargaining. More than 6,708 of our employees are union members and over 37,713 are members of organisations that freely represent them (in countries where this is legal).

The Roche Europe Forum represents nearly 34,900 employees in 26 countries. At global level, we have recently installed an Employee Relations officer.

Our directive on the protection of personal data safeguards information about employees and complies with the relevant local legislation. Where appropriate, we have negotiated data privacy agreements between different parts of the business or with works councils.

More on the web • Employees: www.roche.com/employees • Group policies, positions and guidelines: www.roche.com/policies_guidelines_and_positions

• Global careers portal: http://careers.roche.com • Employment policy: www.roche.com/employment_policy.pdf • Core standards: www.roche.com/commitments

Simplifying and aligning processes in Human Resources All of our HR processes (except those at Genentech and Chugai) now run on one Common HR Information Solution (CHRIS). This uses transactional and reporting systems and is aligned with Taleo, our global e-recruiting solution.

Introduced in July 2009, CHRIS replaces several legacy solutions and enables standardised, streamlined and simplified HR processes across the Roche Group.

Our aim is to ensure consistent HR services and increased efficiency. CHRIS covers 149 affiliates and representative offices and 78% of Roche employees.

Genentech and Pharma North America will fully join in 2011. CHRIS is managed by a global support organisation and network of servicing hubs.

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Society

Our support for communities focuses on programmes and areas that are aligned with our business model.

We believe we can enhance the innovation, sustainability and impact of our business through appropriate donations, sponsorship and employee volunteering.

This inspires and motivates our staff and ensures Roche remains a committed corporate citizen.

Community support in 2009 by area

Monitoring the impact of our community work gives a more accurate assessment of our programmes’ success than publishing detailed financial information about our donations. For example, our Genetics Education Programme for educators in Switzerland and Germany reached nearly 1,250 people. With 60 teachers enrolled in the workshops, the subsequent knowledge transfer reached their colleagues, pupils, and even friends and family. We will expand it in Switzerland and neighbouring regions of Germany in 2010.

Supporting future science Young scientists are our future employees. Nurturing their talent ensures Roche remains an innovative and successful company. For example, we have foundations to support research and education programmes around the world, including the Fondation d’entreprise Roche in France, the global Roche Organ Transplantation Research Foundation and the Genentech and Roche Foundations in the US.

All philanthropic donations and non-commercial sponsorships are monitored internally through the Financial Group Reporting System. The Corporate Sustainability Committee is responsible for monitoring their impact.

In 2009 the Roche Group approved an updated Corporate Policy on Philanthropic Donations and NonCommercial Sponsorship. The policy stipulates that all philanthropic projects should focus on innovation, collaboration, quality and sustainability. It comfirms our priority areas as humanitarian and social, science and education, culture and arts, and community and environment. Our humanitarian and social programmes involve promoting sustainable access to our medicines and diagnostics. We only donate drugs in disaster and pandemic situations.

The policy also ensures our donations target a focused number of non-governmental organisations (NGOs) to which we can make a significant difference, rather than diluting our donations among a large number of NGOs. We exclude governmental, political and religious organisations.

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% of total

Humanitarian and social projects

75%

Science and education

17%

Arts and culture

5%

Community and environment

3%

The Roche Postdoc Fellowship Programme completed its first full year in 2009. The programme aims to encourage creativity in science and strengthen academic networks through support for talented post-doctorate students on two- to four-year research projects with leading academic institutions. In 2009 we offered 19 post-doctorates, taking our total since the programme launched in 2008 to 52 people.

We plan to increase that number to 100 by the end of next year.

In 2009 we piloted the Research Exchange Scholars Programme. The initiative supports science education by giving gifted secondary school students the chance to go on international exchanges. The first exchange featured two biotechnology specialist schools from the US and Germany. Three students from each school undertook a six-week internship at the other, which included individual mentoring at a local university.

The 2009 Congress of the European Society for Medical Oncology (ESMO) awarded Roche in recognition of our support for its Young Oncologist Fellowship programme. We have supported ESMO since it was founded in 1975 through clinical and transnational fellowships. These have helped young oncologists gain

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research experience in renowned European cancer centres. Our ongoing education programmes include a two-day bioethics teaching workshop for secondary school teachers in the US and our partnership with the New Jersey Institute of Technology to support a one-day education programme for primary and secondary teachers.

Encouraging innovation in the arts We support music and the arts because the creativity and innovation of those disciplines reflects our business model. We believe lessons can be shared between arts and science. In 2009 we held the third Roche Continents event to encourage artistic involvement among young people. Around 100 future chemists, biologists, medics, psychologists, musicians, set designers, recording engineers and opera singers from universities all over Europe attended art and science workshops and contemporary classical music performances at the Salzburg Festival.

Roche Commissions sees us sponsor a new musical piece by an outstanding contemporary composer every two years. Toshio Hosokawa will present his work in 2010. In addition, Chugai again sponsored the Star Philharmonic Christmas Concert in Yokohama, Japan, which supports early cancer discovery and treatment.

Supporting our communities We want employees to contribute to their local communities, so we encourage them to identify the projects that they feel would be most worthwhile.

While Roche has a range of Group projects, we encourage staff to fundraise and volunteer alongside their work commitments.

Genentech Goes to Town is a community relations project set up in 1993. Genentech gives employees 25 US dollars worth of vouchers to spend in local shops over two weeks, encouraging them to develop local businesses. The programme has spent more than 1.9 million US dollars in local shops since inception, with more than 200 businesses participating.

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We set up the Roche Employee Action and Charity Trust (Re & Act) in 2006 as an independent charity organisation to manage employee donations. It distributes funds to community projects and disaster relief efforts around the world. Since an earthquake in 2007 Re & Act has maintained ongoing assistance and reconstruction in the town of Chocos, Peru.

In 2009 the project built a community canteen and 12 new homes capable of withstanding another quake, as well as completing the community’s dam.

The annual Roche Children’s Walk has been going since 2003. However, it did not take place in 2009 as it has been moved from December to July to increase participation. Nonetheless, Re & Act’s work with the European Coalition of Positive People and UNICEF, Switzerland, which both have long-term projects to support children impacted by HIV/AIDS in Malawi, continued. Roche employees were still invited to donate in 2009 and we guaranteed financial coverage to ensure the children do not suffer in the interim.

To date, the walk has raised enough money to build and furnish 18 new classrooms, accompanying teachers’ offices and sanitation and hygiene facilities for nearly 1,500 primary school children. The sponsored walk has also helped fund education for 108 secondary school students and five further education students.

In rural South Africa there is just one doctor for every 4,000 patients. The Phelophepa Health Care Train aims to reduce the burden by providing a mobile health clinic to more than 45,000 people. We have supported the service since it began 15 years ago and in 2009 additional funding from Roche contributed to a cancer health awareness service. The new service includes cancer screening, training for staff, community cancer awareness events, patient counselling and education focused on breast, cervical and prostate cancer.

More on the web • Roche social programmes: www.roche.com/society

• Roche ’n’ Jazz: www.roche-n-jazz.net • Re & Act: http://react.roche.com

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Safety, security, health and environmental protection­

Safety, security, health and environmental protection (SHE) are critical for our business. We take SHE into consideration in all our activities. The Roche Corporate Principles and SHE Policy commit us to the highest SHE standards. In 2009 we invested 159 million Swiss francs in SHE infrastructure and 294 million Swiss francs in SHE operating costs.

SHE management A 36-strong team coordinates SHE within Roche. We have 680 full-time SHE employees to ensure our performance. New SHE Officers attended a training week to learn about our SHE Policy, strategy, Guidelines and processes. Attendees discussed Roche’s SHE responsibilities and how to access relevant expertise. They also learnt how to establish and maintain a risk management system at their sites. We held regional workshops for existing SHE Officers on topics such as energy efficiency, security and industrial hygiene.

Everyone at Roche is responsible for ensuring health and safety and for minimising the environmental impacts of our operations. We need everyone to understand our SHE standards, so we offer site-specific training, including lectures and practical courses. We have also begun a basic one-hour SHE e-learning module for all employees. In 2009, 60,052 employees received an average 2.7 hours of SHE training each.

It is important to understand SHE risks across the business, so we can develop local safety measures as well as Group-level responses. We list all SHE risks on a web-based inventory accessible by all managers across the business. Individual site managers and SHE Officers implement the SHE Policy and Guidelines locally. In the Pharmaceuticals and Diagnostics Divisions, eco-delegates raise awareness of environmental issues.

We monitor the implementation of the SHE Policy using regular site audits and we use the results to improve performance. In 2009 we conducted 27 audits, revealing no major deficiencies but highlighting the need to update site risk analyses.

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We train employees who handle chemicals as part of their work to use them properly and we provide safety data sheets for over 1,000 specific chemicals on our website.

We hold our ECOmpetition every three years to raise awareness of environmental issues among employees by encouraging them to suggest new ways to reduce our impacts. The 2009 competition — our fifth — elicited more than 335 proposals from 428 people at 46 sites.

The 29 winners included: • Roche Palo Alto, US — retrofitting cooling equipment to replace halogenated hydrocarbon (HCFC) with hydrocarbon refrigerants (propane or propylene) • Roche Jacarepaguá, Brazil — recovering solutions from tubing using a polystyrene plug rather than water and nitrogen • Chugai Pharma, Japan — regenerating emergency batteries in uninterrupted power supplies instead of replacing them.

The annual Roche Responsible Care Awards encourage sites to suggest energy efficiency improvements.

In 2009, 50 submissions from 21 sites stood out, including: • Roche Bezares, Mexico — Solar boilers installed to provide hot water • Roche Diagnostics, US — Controlled lighting during quiet periods • Roche Diagnostics, India — A special glass façade was installed to save energy costs.

Security We appointed a Corporate Security Officer (CSO) in 2007. In 2009 we set up a network of more than 100 Site Security Officers (SSOs) and issued a Corporate Directive to define their responsibilities, as well as our security principles and general processes. The Directive describes minimum standards to protect employees, visitors, physical assets, products and business-sensitive information.

We also introduced a global security incident reporting tool that allows SSOs and the CSO to analyse

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incidents and establish corrective measures. In 2009 we focused on counterfeit products and prevented the sale of significant quantities of fake products.

Health and safety The Roche Accident Rate (RAR) measures the number of working days lost due to occupational accidents per employee per year.

Environmental footprint Our environmental footprint takes into consideration research and production as well as product packaging, distribution, use and disposal.

In 2009 the RAR was 0.074. This represents a 5.9% improvement from 2008 and is comfortably below the 0.079 Group goal for 2010.

Health and safety

Roche Accident Rate

2009

2008

2007

0.074

0.078

0.076

Occupational accidents

392

474

482

Occupational illnesses

227

270

311

Work-related fatalities

0

0

1

Work-related accidents per million working hours

2.92

3.42

3.46

We expect contractors who work on Roche premises to follow the same safety rules as employees.

Contractors were involved in 152 accidents in 2009 (in addition to those reported for employees), resulting in an injury frequency rate of 1.32 (accidents per 100,000 working hours).

Employees suffered 227 cases of occupational illnesses in 2009, a decrease from 270 in 2008. The number of working days lost was 607 — the same level as in 2008. Locomotor disorders, especially repetitive strain injuries, accounted for more than two-thirds of the total. We work to reduce these injuries through local ergonomic programmes, improved office equipment and individual assessments. Genentech’s ergonomics programme addresses cumulative trauma and includes a dedicated training website. The South San Francisco site has three ergonomics showrooms allowing staff to test products for the office, plant and laboratory.

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A Group-level body investigates significant SHE incidents and communicates the relevant findings across the company, including for use in training programmes, where suitable.

We use the Swiss Agency for the Environment’s (BAFU) ‘eco-balance’ method to calculate our environmental footprint. It reflects resource use as well as emissions and waste. In 2009 our eco-balance was 4.6, an improvement of 7.1% from 2008. This reflects significantly reduced emissions to air and organic materials discharged to water. We are currently operating within our target eco-balance of 5.92 for 2015.

We also measure environmental expenditure in relation to sales to help ensure we target our investment in the areas where it will have the most impact.

The calculation gives us an Eco-Efficiency Rate (EER), as shown in the table below. This combines data on energy use, waste, emissions to air and water with expenditure on environmental protection and sales (a detailed definition is available on the Roche Group website). In 2009 our EER was 84.02, an improvement of 7.8%.

Eco-efficiency rate

Sales (million CHF)

2009

2008

2007

49,051

45,617

46,133

186

209

232

Environmental expenditure (million CHF) Environmental damage (millions of environmental damage units) EER

3,14

2.80

2.96

84.02

77.95

67.19

The Roche Environmental Awareness in Chemical Technology (REACT) programme promotes sustainable chemistry practices in our R & D labs around the world.

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Corporate Responsibility

Roche Business Report 2009

REACT sets sustainable chemistry guidelines to measure the benefits. For example, the Mass Intensity Factor measures the ratio of inputs of raw materials against outputs, while solvent selection guidelines help employees choose less harmful solvents. The programme aims to: support Roche’s sustainability goals; share best practices around the Group; raise employee awareness; increase recognition for R & D’s sustainability work; and reduce costs.

Energy and climate change Our position paper on Greenhouse Gases and Climate Change guides our Group strategy for decreasing emissions.

Energy use by type | Fuel used by

Roche’s energy and fuel use in 2009 totalled 13,898 terajoules, an increase of 1.7% from 2008. This is mainly due to the inclusion of Genentech’s car fleet for the first time. Energy use is approximately 176 gigajoules per employee, a small decrease since 2008.

11.1

company vehicles Oil Fuel due to business

2.1 15.2

air travel Grid electricity

29.2

District heating

3.9

Waste/

0.9

Renewable energy Natural gas

We regularly analyse Roche’s vulnerability to the changing climate. We have not identified any sig­ nificant risks to our business from climate change, or any specific business opportunities.

%

37.6

sions factors at some sites whose electricity providers recalculated the less emission-intensive proportion of their energy mix.

Greenhouse gas emissions |

tonnes CO2 equivalent

2009

Total emissions

2008

2007

1,053,118

1,062,114

1,052,407

21.47

23.28

22.81

Total emissions per million CHF

Energy use |

of sales

terajoules

Total energy use

2009

2008

2007

13,898

13,662

13,664

0.283

0.299

0.296

0.176

0.178

0.179

Total energy use per million CHF of sales Total energy use per employee

Our climate strategy focuses on energy use, which accounts for most of our carbon dioxide (CO 2 ) emissions. We convert amounts of CO 2 and other greenhouse gas (GHG) emissions such as halogenated hydrocarbons leaking from refrigeration equipment into CO 2-equivalents. In 2009 we emitted 1,053 thousand tonnes of CO 2-equivalents, an absolute decrease of 0.8% from 2008. This reduction comes despite increased energy consumption due to revised emis-

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The 7.8% reduction in emissions in relation to sales shows that Roche is reducing energy use while the business grows.

In 2009 we developed a standard for integrating energy efficiency management into building projects.

This accompanied a new Group-wide Manual on Energy Efficient Design, which will help us design future facilities and refurbished buildings to minimise energy use.

Milan has a problem — it is one of the most polluted cities in Europe. Smog is at a record level, far above European Union limits. Roche Monza (Italy) began a programme to reduce its environmental impacts in 2007 by modifying transport, increasing recycling and

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Reduce total energy consumption and greenhouse gas emissions

Energy use by selected types 2009

10%

Fuel used by company vehicles Introduced a new target for our European company car fleet to include only vehicles producing no more than 120 grams of carbon dioxide (CO 2 ) per kilometre by the end of 2011.

15%

Fuel due to business air travel Video and teleconferencing facilities have been established at all sites and are widely supported.

Employees are encouraged to use trains and to consolidate several business trips into one.

30%

Grid electricity and natural gas Our first priority is to reduce usage of energy.

For the energy we do use we look for ways of improving the efficiency, such as heat recovery.

In addition we encourage the use of green energy wherever sensible. To help drive this in 2009 we released our Group-wide Manual on Energy Efficient Design for the construction of future facilities that minimise energy use.

40%

reducing energy use through sensor lights and energy-saving light bulbs. In 2009 the site increased its focus. Lifegate, an external environmental organisation based in Monza, now monitors energy and water use, waste disposal, logistics and employee transport. The site has also started buying 10% of its energy from renewable sources. In addition, an internal awareness campaign has encouraged employees to get involved in energy-saving initiatives. So far, the site has reduced CO 2 emissions by around 45%.

Roche has a Group directive on energy conservation which promotes local initiatives. It includes energy efficiency standards for new and existing electrical equipment and requires sites to conduct energy audits.

The US Environmental Protection Agency (EPA) has commended our US affiliates for meeting their goal to reduce GHG emissions by 18% between 2001 and 2010 ahead of time. Roche US has pledged to reduce emissions by a further 13% from 2008 to 2013.

The 2009 audits identified opportunities to improve our buildings, utilities, plants and processes, including those at Genentech. These include improved metering and monitoring, retro-commissioning buildings and adapting lighting and air-conditioning systems.

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Genentech met its own 2010 GHG emissions reduction goal two years ahead of schedule. It will now join the rest of Roche’s US affiliates in pursuing a new goal of decreasing emissions by 13% by 2013.

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Corporate Responsibility

Despite these central functions, we give sites the freedom to develop their own emissions reduction strategies. We believe this approach improves results because sites are more familiar with their own needs and circumstances. For example, Roche Shanghai has an ongoing project to increase energy efficiency.

The programme has seen the introduction of triple and double glazing, optimal insulation, geothermal heating and cooling, low-power energy systems and solar water heating.

Business travel accounts for approximately 15.2% of our total CO 2 emissions overall and our car fleet is responsible for approximately 11.1%. Employees are encouraged to use trains when travel is necessary and to consolidate several business trips into one.

Video and teleconferencing facilities also help us minimise travel. For example, Roche Finland worked with WWF Finland to host the American Society of Clinical Oncology’s annual meeting virtually. In June 2009 around 180 customers attended the conference from their clinics, participating through video streaming.

Several sites now use Telepresence ® systems, which significantly improve the quality of videoconferencing, encouraging increased usage.

Ozone depletion The target date for Roche’s directive to phase out halogenated hydrocarbons (CFCs and HCFCs), which damage the ozone layer and affect the climate, has been extended from 2010 to 2012 or 2015, depending on the local situation. This is due to a lack of accepted alternatives in some countries. Genentech has not yet defined a target date, but is committed to phasing these gases out.

Replacements for HCFCs and CFCs, such as HFCs (hydrofluorocarbons) and PFCs (perfluorinated carbons), do not affect the ozone layer but they can contribute to climate change and are persistent in the environment, so we do not consider them a longterm alternative. Roche has a target to phase out HFCs and PFCs by 2015. Genentech and other recent acquisitions will work to a separate deadline, to be defined in 2010. Some technical problems continue to prevent us from replacing these in all applications, but we are working to find alternative technologies.

Ozone-depleting chemicals |

tonnes

2009

2008

2007

179.8

144.6

148.2

6.5

3.4

4.7

Halogenated

A new target for our European company car fleet aims to ensure we will use vehicles producing no more than 120 grammes of CO 2 per kilometre by the end of 2011. This will cut CO 2 emissions by 5,400 tonnes and save two million litres of fuel per year.

A number of sites have launched initiatives to encourage staff not to use private cars to commute to work.

At Genentech, for example, the gRide programme has promoted alternatives such as vanpooling, mass transit, cycling, walking and Genenbus shuttles since 2006. The shuttles were updated in 2009 with newer, more efficient models that meet the US EPA’s 2007 standard for particulate emissions. At Rotkreuz, Switzerland, we have introduced an annual bonus of 360 Swiss francs for staff who commute to work without using a car or motorbike.

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hydrocarbons holdings Halogenated hydrocarbons emissions

Roche’s halogenated hydrocarbons inventory increased 24.3% in 2009 due to the introduction of Genentech’s holdings to the Group total. Without this increase, Roche’s holdings would have decreased 6%.

Emissions to air Emissions to air from our operations include volatile organic compounds (VOCs), particulates, nitrogen oxides (NO x ) and sulphur dioxide (SO 2 ). We aim to reduce these emissions, which can contribute to air pollution, smog and acid rain. In 2009 we reduced VOC emissions by 16.9% to 177 tonnes. Our emissions of particulates, NO x and SO 2 were 27 tonnes,

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286 tonnes, and 9 tonnes, respectively. These fluctuate at low levels from year to year.

Emissions to air |

tonnes 2009

2008

2007

177

213

240

27

27

25

Nitrogen oxides

286

193

169

Sulphur dioxide

9

10

12

VOCs Particulates

Waste Around 96% of our chemical waste is incinerated, the disposal method with the least environmental impact. In 2009 we produced 27,605 tonnes of chemical waste, an 11.8% decrease from 2008. This does not include waste that can be reused as raw materials by other companies. In 2009 we sold around 4,000 tonnes (mostly solvents) for reuse.

In 2008 we engaged in significant building activity, while 2009 was characterised by building demolition. We generated 53.7% less general waste (19,828 tonnes) but our recycling rates increased 374%, due to 104,817 tonnes of building rubble made available for recycling (mostly metals and concrete sold to other companies for reuse). Excluding this building rubble we recycled 30,671 tonnes, 7.3% more than last year. We decreased general waste sent to landfill by 63.6%. 31% of the total 19,828 t were incinerated.

Waste |

tonnes 2009

2008

2007

19,828

42,823

17,480

0.4

0.94

0.38

27,605

31,295

38,167

0.56

0.69

0.83

General waste produced

We monitor landfill sites to ensure our chemical waste does not pose a risk to human health or the environment. Some landfills need to be sustainably remediated. In 2009 we completed a project to remediate the Hirschacker landfill in Grenzach, Germany. Roche voluntarily financed this project. In 2009 we made available approximately 247 million Swiss francs for other such projects.

Water We need clean water for manufacturing, but we understand the need to reduce our water use. Based on the Global Reporting Initiative’s definition of water consumption (water used in products, cooling, and irrigation), our use increased by 16.3%. We used 2.8 million m 3 of water in 2009.

The water we use can be contaminated during manufacturing, so we treat wastewater to ensure it is safe for people and the environment. We continue to develop ways to increase our capacity to treat wastewater around the Group.

One of the winning submissions of ECOmpetition 2009 came from Roche Penzberg, Germany. The submission outlines a proposal to use residual water from the distillation of purified water to generate steam for the plant’s boiler.

In 2009 we decreased the amount of organic material discharged into water courses after treatment by 74% to 154 tonnes. This is mainly due to a recalculation of data from two sites because investigations into differences at similar sites revealed that they had over-reported in previous years. We also released 426 kilograms of heavy metals such as chromium, copper and zinc, 21.8% less than in 2008.

General waste per million CHF of sales Chemical waste produced

Our new goal to reduce toxicity of discharged wastewater reflects the generally lower toxicity of organic matter from biotech operations than from chemical production.

Chemical waste per million CHF of sales

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Water 2009

2008

2007

18.6

21.0

21.0

2.8

2.4

2.3

5.2

7.3

7.1

Water withdrawn (million cubic metres) Water used (million cubic metres) Wastewater discharged to treatment plant (million cubic metres)

Compliance and incidents Roche did not receive any significant SHE fines in 2009.

We meet all local laws or regulations as a minimum.

However, our Group policies are often stricter than these. We control substances that could be misused to produce narcotics, toxins or chemical and bio weapons. These substances, which we keep in small supply, are often regulated and we ensure compliance with all applicable legislation.

Organic matter

2010 objectives

discharged to

• Reduce the Roche Accident Rate by 20% by 2010

watercourses after treatment (tonnes)

154

592

641

•

Heavy metals

•

discharged to watercourses after

•

treatment (kilogrammes)

426

545

605

Pharmaceuticals in the environment (PiE) Traces of pharmaceutical products end up in the environment, raising fears that they may later be found in food and water sources. This is usually due to normal patient use, although manufacturing and improper disposal also contribute. We offer retailers financial incentives to return unused or old products so we can discard them properly. We analyse the risk of pharma­ ceuticals entering the environment in our life-cycle approach to product development, minimising releases where possible. Manufacturing sites are designed and operated to reduce active ingredients entering wastewater.

Although current evidence suggests little presence of PiE, we recognise the need for more research into long-term effects. In 2009 we undertook a thorough risk assessment of the active ingredient oseltamivir (Tamiflu) being excreted into the environment during heavy pandemic use. The assessment found no signifi­ cant risk. Our 2008 position paper on PiE describes our aim to monitor risks and Roche is a member of international and local bodies studying the impacts of trace chemicals in surface and ground water.

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from the 2005 baseline Improve total eco-balance by 10% by 2015 from 2005 baseline (points/employee) Reduce total energy consumption by 10% by 2010 from 2005 baseline (gigajoules/employee) Receive no significant SHE-related fines.

Medium- and long-term objectives • Average four hours of SHE training per employee • Reduce the Roche Accident Rate (RAR) to 0.07 and work-related accidents per million working hours to below 3 by 2015 • Improve our eco-balance by 15% by 2020, from a 2010 baseline • Improve energy efficiency (measured as gigajoule per employee) by 10% by 2014 and 20% by 2019 compared with 2009 • Increase the proportion of renewable energy used to 20% by 2020 • Reduce the toxicity of discharged wastewater by 20% by 2020 from a 2015 baseline.

More on the web • SHE performance: www.roche.com/she_performance

• Safety, security, health and environmental protection: www.roche.com/environment

• Safety, security, health and environmental protection (SHE)

• •

Policy: www.roche.com/safety_health_and_environmental_ protection.pdf Group fact sheets, positions, policies and guidelines: www.roche.com/policies_guidelines_and_positions Genentech sustainability report: www.gene.com/gene/about/environmental/

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Independent Assurance Report

To the Corporate Sustainability Committee of Roche Holding Ltd, Basel (‘Roche’).

We have performed assurance procedures to provide assurance on the following aspects of the 2009 corporate responsibility reporting of Roche.

Subject matter Data and information disclosed in the corporate responsibility reporting of Roche and its consolidated subsidiaries, excluding Chugai Pharmaceutical Co., Ltd., for the business year ended December 31, 2009 on the following aspects: • The management and reporting processes with respect to the corporate responsibility reporting and to the preparation of SHE and people key figures as well as the control environment in relation to the data aggregation of these key figures; • The SHE key figures in the tables on pages 114 to 120 and some selected people key figures disclosed on pages 104 to 111 of the Roche Annual Report 2009; and • Compliance information concerning the compliance functions, the compliance organisation and the management of cases reported through the Roche Group SpeakUp Line, the latter with a focus on data privacy and protection of individual’s anonymity as disclosed on page 92 of the Roche Annual Report 2009, excluding ethical incident data.

Criteria • The Roche Group internal corporate responsibility reporting guidelines based on the Responsible Care programme Health, Safety and Environmental Protection reporting guidelines published by the European Chemical Industry Council CEFIC and the ‘Sustainability Reporting Guidelines G3’ published on October 2006 by the Global Reporting Initiative (GRI); and • The defined procedures by which SHE and people key figures are gathered, collated and aggregated internally.

• The Roche Group business principles, the internal Group SpeakUp guidelines based on the directive on use of Roche Group SpeakUp Line and good practice procedures by which compliance functions and speak up lines are designed, managed and operated.

The Roche Corporate Sustainability Committee is responsible for both the subject matter and the criteria. Our responsibility is to provide a conclusion on the subject matter based on our assurance procedures in accordance with the International Standard on Assurance Engagements (ISAE) 3000.

Main assurance procedures Our assurance procedures included the following work: • Evaluation of the application of Group guidelines | Reviewing the application of the Roche internal corporate responsibility reporting guidelines; • Site visits | Visiting selected sites of Roche’s Pharmaceuticals and Diagnostics Divisions in Switzerland, Germany, France, Spain, Italy and China. The selection was based on quantitative and qualitative criteria; Interviewing personnel responsible for compliance matters, internal corporate responsibility reporting and data collection at the sites we visited and at the Group level to determine the understanding and application of Roche internal corporate responsibility guidelines; Visiting the premises of People Intouch in Amsterdam.

Interviews with People Intouch staff involved in design, implementation and operations of the SpeakUp solution.

• Assessment of the key figures | Performing tests on a sample basis of evidence supporting selected SHE and people key figures (Roche accident rate, energy consump-

•

•

• Responsibility and methodology The accuracy and completeness of corporate responsibility indicators are subject to inherent limitations given their nature and methods for determining, calculating and estimating such data.

Our assurance report should therefore be read in connection with Roche’s internal guidelines, definitions and procedures on the reporting of its corporate responsibility performance.

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tion, CO2 emissions related to energy consumption, release of halogenated hydrocarbons, use of water, fines in relation to safety and environmental protection, headcount/FTE data, staff turnover, senior management positions and labor practices information) concerning completeness, accuracy, adequacy and consistency; Review of the documentation and analysis of relevant policies and basic principles | Reviewing the relevant documentation on a sample basis, including group sustain­ ability policies, management and reporting structures and documentation.

Assessment of the processes and data con­solidation | Reviewing the appropriateness of the management and reporting processes for corporate responsibility reporting; and Assessing the consolidation process of data at the group level.

Assessment of speak-up processes and systems (case management) | Walk through the speak up process by using a practical example and assessing the following: protection against unauthorised access; connections and processes to external service providers and external business partners; processes in place for administration, logging, monitoring and backup/restore all in relation to the data privacy and anonymity.

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Roche Business Report 2009

Independent Assurance Report

Conclusions In our opinion • The internal corporate responsibility reporting guidelines are being applied properly; • The internal reporting system to collect and aggregate SHE and people key figures is functioning as designed and provides an appropriate basis for its disclosure; and • The Roche Group SpeakUp Line systems and processes are designed following good practice procedures with regard to data privacy and anonymity.

Based on our work described in this report and the assessment of criteria, nothing has come to our attention that causes us to believe that the data and information mentioned in the subject matter and disclosed with the Sustainability Reporting in the Roche Annual Report 2009, excluding ethical incident data does not give a fair picture of Roche’s performance.

The Global Reporting Initiative sustainability reporting guidelines With this years’ Annual Report we continue our approach of aligning our sustainability reporting to the guidelines of the Global Reporting Initiative (GRI).

For the third time, Roche is of the opinion that the A+ level of the GRI G3 guidelines applies to its Annual Report 2009.

This was checked with and confirmed by the GRI. Details of how we report against each indicator can be found at www.roche.com/reporting_and_indices

Zurich, 19 January 2010 PricewaterhouseCoopers AG

Dr Thomas Scheiwiller

Stephan Hirschi

Severin Schwan

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29 01 2010 09:43 56

Published by F. Hoffmann-La Roche Ltd 4070 Basel, Switzerland Tel. +41 (0)61 688 11 11 Fax +41 (0)61 691 93 91 Media Office Group Communications 4070 Basel, Switzerland Tel. +41 (0)61 688 88 88 Fax +41 (0)61 688 27 75 Investor Relations 4070 Basel, Switzerland Tel. +41 (0)61 688 88 80 Fax +41 (0)61 691 00 14 World Wide Web www.roche.com Corporate Sustainability Committee Tel. +41 (0)61 688 40 18 E-mail: corporate.sustainability @ roche.com To order publications Tel. +41 (0)61 688 83 39 Fax +41 (0)61 688 43 43 E-mail: basel.webmaster @ roche.com Next Annual General Meeting: 2 March 2010

Cautionary statement regarding forward-looking statements This Annual Report contains certain forward-looking statements. These forward-looking statements may be identified by words such as ‘believes’, ‘expects’, ‘anticipates’, ­‘projects’, ‘intends’, ‘should’, ‘seeks’, ‘estimates’, ‘future’ or ­s imilar expressions or by discussion of, among other things, ­s trategy, goals, plans or intentions. Various factors may cause actual results to differ materially in the future from those reflected in forward-looking statements contained in this Annual Report, among others: (1) pricing and product ­initiatives of competitors; (2) legislative and regulatory developments and economic conditions; (3) delay or inability in obtaining regulatory approvals or bringing products to market; (4) fluctuations in currency exchange rates and ­g eneral ­f inancial market conditions; (5) uncertainties in the discovery, development or ­m arketing of new products or new uses of existing products, including without limitation negative results of clinical trials or research projects, ­u nexpected side effects of pipeline or ­m arketed products; (6) increased government pricing pressures; (7) interruptions in production; (8) loss of or inability to obtain adequate protection for intellectual property rights; (9) litigation; (10) loss of key executives or other employees; and (11) adverse publicity and news ­c overage.

The statement regarding earnings per share growth is not a profit forecast and should not be interpreted to mean that Roche’s earnings or earnings per share for 2009 or any subsequent period will necessarily match or exceed the ­h istorical published earnings or earnings per share of Roche.

All trademarks mentioned enjoy legal protection.

Links to third party pages are provided for convenience only.

We do not express any opinion on the content of any third party pages and expressly disclaim any liability for all third party information and the use of it.

The Roche Annual Report is published in German and ­E nglish.

Printed on non-chlorine bleached, FSC-certified paper.

The Roche Annual Report is issued by F. Hoffmann-La Roche Ltd, Basel, Group Communications.

The cover photograph shows a ribbon diagram of rituximab, the therapeutic protein at the heart of MabThera/Rituxan. This targeted biologic medicine is used to treat non-Hodgkin’s lymphoma, chronic lymphocytic leukemia and rheumatoid arthritis.

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Key figures

09

F. Hoffmann-La Roche Ltd Published by 4070F.Basel, Switzerland Hoffmann-La Roche Ltd 4070 Basel, Switzerland Š 2010 Š 2009 All trademarks mentioned are legally protected. enjoy legal protection.

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Roche Annual FinanceReport Report

Roche Half-Year Report 2009

Leading in biotechnology.

Improving patient care.

Excellence in Science

Roche Roche | | Finance Annual Report 2009

77 000 000 827 0007846 844

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1 2 3 4 5

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Key figures indexed to 2007 = 100.

Before exceptional items.

Proposed by the Board of Directors.

Development phase I to IV. For calculation of the Eco-Efficiency Rate see: www.roche.com/environment

00_L_Roche_AR09_ENG_Key figures.indd 1

Figures for 2007 as in Annual Report 2008.

For a full index of Global Reporting Initiative (GRI) indicators used in the report see: www.roche.com/reporting_and_indices

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